New intermediary or 'broker' models are emerging in regulated markets in response to new opportunities created by disruptive technology, but what is the right regulatory response to this new phenomenon?
The conventional retail business models seen in many regulated sectors – from banking, through telecoms to energy – face the prospect of disruption (if not extinction) in the face of innovative new entrants who are often able to exploit growing digitisation better than incumbents.
Increasingly, consumers are being presented with choices never previously available to them. It is no longer simply a question of switching between regulated retailer A to regulated retailer B. Now, the consumer has the option of handing the whole complicated business of switching to (often unregulated) new entrant C who will provide a switching service as part of its own value proposition, perhaps bundled with other services.
The Green Paper – disruption and regulated markets
In its Green Paper on Modernising Consumer Markets published in April, the UK Department of Business, Energy and Industrial Strategy explores some of the issues for policy makers and regulators posed by these developments.
On the one hand, the Department recognises the challenges the real, and (it often seems) intractable, problem posed by the inability of consumers to make 'rational' choices (about "A to B" switches) particularly when confronted with complexity. It acknowledges that, as a result, regulators have become much more focused on exploring what are the best ways to help consumers make good choices, based on how they really behave and the factors that might inhibit them searching for and switching to better deals.
On the other hand, the Department calls for ambitious action, looking at how changes in markets and technologies can be harnessed to help consumers access "C" services, not only as regards price comparison websites and other types of digital comparison tools which can save time and effort for consumers, but also as regards emerging technologies, such as automatic switching services or apps, that can make it even easier for consumers to manage the range of services they require.
The Green Paper recognises that, in this, regulators have a key role to play – they can initiate activity, set expectations and standards, reassure consumers (for instance in relation to data privacy and security) and bring industry, innovators and consumer groups together. And the Department emphasises that, with the growth of cross-sectoral bundling and intermediaries operating across multiple sectors, it wants to ensure that a sectoral lens does not limit the potential.
The Green Paper – some open questions
The Green Paper leaves open some fundamental questions about the type of regulatory response that might be needed here, in particular when it comes to the rise of the "C" players, or perhaps brokers, in regulated markets. Here are just a few:
- Should these brokers be regulated (and, if so, by whom) and what form should that regulation take? This seems to depend, at least in part, on whether they duplicate or complement the "A and B" players.
- What standards of conduct should brokers they be required to observe? This links back, of course, to the question of regulation and, for instance, whether ex ante conduct regulation is appropriate.
- What sort of relationship should they have (or be permitted to have) with other market participants? This might be particularly relevant if brokers seek to make a virtue of their neutrality or independence.
There are no easy answers to these questions, but the sheer pace of disruption is such that policy makers and regulators need to start developing interim responses while they figure out a longer term strategy.
Responses to the Green Paper are due by 4 July 2018.
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