Closing the “RegLag” Between Prospective Regulated Activity and Regulation

There is often a significant delay between the start of an activity that ends up being regulated and the moment a regulatory response is announced or adopted. This regulatory lag (RegLag) enables individuals, firms, and regulators to engage in undesirable activities while the process of regulation moves slowly along. But reducing RegLag, especially in connection with the financial industry – an issue on which we focus – is challenging.

World-wide, regulators are for various reasons hamstrung in defining “wrongs” and identifying activities that should be regulated.  Similarly, regulator reaction is also impeded by issues such as confusion about the optimal level, form, and choice of regulatory agency; political resistance; lack of statutory authorization to address issues; jurisdictional competition among regulators; and lack of expertise in deploying counter-measures. Our study develops the RegLag theory and argues that regulatory technologies (RegTech), including distributed ledger technology, can help reduce RegLag.  It proposes programs to improve regulatory-agency foresight to aggressively adapt to changing regulable activities, including by using promising technology-enabled anticipatory approaches (“Anticipatory RegTech Model”). On October 9, 2020, the Financial Stability Board (FSB) published a report that supports similar conclusions.[1]

Using RegTech to Narrow RegLag Gaps

RegLag, similarly to “Law Lag”, which is mentioned in law and technology literature and refers to how the law is lagging new technologies,[2] presents regulators with great challenges. Attempting to address these challenges in recent years, administrative law experts have focused on ways for lawmakers to quickly and effectively make novel legal and policy changes. An example is the use of guidance documents, which are one controversial aspect of administrative law.[3] Another example is actions that government and regulatory agencies take in investigations and enforcement proceedings.[4] These methods are, to some extent, part of what has become known as administrative constitutionalism legal scholarship – a catchphrase for literature that explores the role of administrative agencies in influencing, creating, and establishing constitutional standards and norms and governance based on those.[5] Our study overlaps somewhat with administrative constitutionalism scholarship, advocating for a different way to handle RegLag: using RegTech to reduce regulatory delay by modifying the types of regulable activities with an Anticipatory RegTech Model.

Using RegTech to help narrow RegLag gaps, especially in connection with financial regulation, should also be partly based on insights from theories of “adaptive law” and “resilience-and-law.”[6] Much as in financial regulation, environmental law must constantly adapt in order to faster and better regulate evolving circumstances, and of RegTech can help. Resilience-and-law scholars give importance to adaptive management,[7] a procedure that assumes knowledge relies on experiments with feedback loops. Regulators could benefit from learning about adaptive management and how to utilize RegTech to address trends and changing circumstances. .

There is no reason not to expand the use of RegTech to help lawmakers adapt to changing regulable activities. RegTech is disruptive of current compliance approaches to (i) statutory mission interpretation, (ii) agency workforce training and adaptation, (iii) policymaking and rulemaking, (iv) monitoring and maintenance of regulatory systems, (v) investigations, (vi) sensor operations, (vii) data collection, (viii) enforcement, (ix) litigation and dispute resolution, (x) development and announcement of regulatory guidance, (xi) oversight of self-regulatory organizations (SROs), and (xii) agency hiring and procurement.

Moreover, RegTech alternatives are likely appropriate for local, state, federal, multi-national regulatory bodies,[8] as well as for SROs. For example, online alternative dispute resolution systems deployed by regulators, courts,[9] and NGOs show promise in improvinf efficiency.[10] We argue that RegTech can help narrow the RegLag gap by improving regulatory agencies’ ability to better perceive events or gain data in order to better assess future trends and.[11]

But not everyone would be a fan of RegTech. First, RegTech could raise political opposition and prompt litigation challenges from, for example, those who view RegTech as intrusive and stealth re-regulation. Privacy and confidentiality may also be issues Second, though RegTech advocates promise cost savings and greater efficacy, regulated entities must likely invest substantially to make RegTech successful. Therefore, higher costs for RegTech ultimately seem likely, at least during initial stages of operation.  Any cost savings from electronic monitoring must be balanced with loss of privacy and confidentiality. Third, RegTech is likely to exhibit all the cyber security difficulties already plaguing electronic commerce: online sales, financial services, banking, trading, etc.[12]  This does not mean that RegTech will not be effective. RegTech may obviate deregulation if its done right. RegTech makes for a fiercer government beast because regulatory methods are mechanized on both sides, allowing force reduction, cost savings, and regulated entity’s touting of faithful compliance. Consider how RegTech may have enabled enhanced regulation in the COVID19-era education and tele-commuting adaptation revolution. But RegTech may ultimately depend on intermediaries’ risk. Third party service-providers may also bring problems. Additionally, restrictive contractual terms, like non-disclosure agreements, lock-in provisions and non-competes, make RegTech solutions complex to manage.

Nevertheless, RegTech shows great promise in narrowing the RegLag gap. RegTech programs can improve regulatory agency foresight and help regulators to more aggressively adapt to changing regulable activities.  But any such transformation may remain elusive for various reasons, including the technology diffusion lag and the fact that undermining regulatory agencies by de-regulatory ideological forces will undercut RegTech’s promise. Considerable expense will be needed for IT hardware, training, specialized consulting, bulk data, and third party service providers both for regulators and regulated entities. New procurement expertise will often be needed, particularly for regulatory agencies. Perhaps centralized procurement and adaptation will be needed for state agencies and for federal agencies. Some centralized, coordinating agency with technical expertise would make sense, so long as it is not politicized. It  would need to be run as an independent inspector general to assess RegTech’s efficacy and efficiency.[13]


[1] A Report on The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions: Market developments and financial stability implications, FSB, Oct. 9, 2020, at (The FSB’s report on the use of supervisory technology (SupTech) and RegTech found that opportunities offered by SupTech and RegTech have been created by the substantial increase in availability and granularity of data, cloud computing and application programming interfaces. The reports explains how SupTech and RegTech tools could improve financial stability, as well as the lawmakers’ oversight, surveillance, and analytical capabilities, while also improving regulated institutions’ compliance outcomes, and decision-making processes and abilities.)

[2] ‘Law lag’ or ‘legal lag’ refers to situations in which “existing legal provisions are inadequate to deal with a social, cultural or commercial context created by rapid advances in information and communication technology.” See Jeremy Pitt & Ada Diaconescu, The Algorithmic Governance of Common-Pool Resources, in From Bitcoin To Burning Man And Beyond: The Quest For Identity and Autonomy i a A Digital Society 130, 137-38 (John H. Clippinger & David Bollier eds., 2014).We focus on “RegLag,” which is broader than ‘law lag’ as it is not limited to circumstances in which the lag results from technologically-driven changes, but generally to situations in which new or different regulation is needed to address new “wrongs” or should-be-regulable types of activities.

[3] See e.g. Ming Hsu Chen, How Much Procedure Is Needed for Agencies to Change “Novel” Regulatory Policies?, 71 Hastings L.J. 1127 (2020) (explaining that guidance documents need not provide notice to the public or enable comment on the new rules; this makes legal and policy changes easier and faster)

[4] Suspecting that President Trump is attempting to limit in many ways the actions that agencies can take in investigations and enforcement proceedings, on January 30, 2020, the OMB published a Notice entitled “on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication.” It solicited comments on the issues fairness of the adjudication procedures that agencies use in enforcement proceedings. See Richard J. Pierce, Comments of Richard J. Pierce, Jr. on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication, Docket Number OMB-2019-0006 (February 11, 2020), at

[5] See generally, David Eliot Bernstein, “Administrative Constitutionalism:” Considering the Role of Agency Decisionmaking in American Constitutional Development, (forthcoming Social Philosophy and Policy 2020), at

[6] Other scholars have also argued that environmental justice scholarship helps to address gaps in legal literature relating to adaptation law and resilience. See e.g. Joseph Wenta, Jan McDonald, and Jeffrey S. McGee, Enhancing Resilience and Justice in Climate Adaptation Laws, 8 Transnatl. Environ. L. 1, 89 (2019).

[7] Id. See, also Bradley C. Karkkainen, Adaptive Ecosystem Management and Regulatory Penalty Defaults: Toward a Bounded Pragmatism, 87 Minn. L. Rev. 943, 946-56 (2003); Alejandro E. Camacho, Adapting Governance to Climate Change’ Managing Uncertainty Through a Learning Infrastructure, 59 Emory L.J. 1, 16-24 (2009); Robin Kundis Craig & J.B. Ruhl, Designing Administrative Law for Adaptive Management, 67 Vand. L. Rev. 1, 16-26 (2014).

[8] See e.g., Scott, Colin, Private Regulation of the Public Sector: A Neglected Facet of Contemporary Governance, 29 J.Law & Society 56-76 (2002), at:, but see, Vogel, David, The Private Regulation of Global Corporate Conduct: Achievements and Limitations, 49 Bus.& Society 68-87 (2010) (arguing private regulation cannot substitute state authority).

[9] See e.g., Kulp, Heather & Schmitz, Amy J., Real Feedback from Real People: Emphasizing User-Centric Designs for Court ODR, 26 Dispute Resol. Mag. 6-12 (2020), at

[10] For example, the UDRP, which exemplifies successful SRO-management, deploys online dispute resolution using electronic and expert human facilities of ICANN. As a non-judicial, online ADR method, the UDRP represents a RegTech mechanism, successfully settling nearly 48,000 cases. See generally, Bagby, John W. & John C. Ruhnka, Protecting Domain Name Assets, 74 C.P.A.J. at 64-69 (April, 2004) at

[11] It is true that “[t]o expect clairvoyance or perfection from regulatory agencies would indicate a complete lack of reality.” See Kevin Kinder, Friendly Skies or Turbulent Skies: An Evaluation of the U.S. Airline Industry and Antitrust Concerns, 91 S. Cal. L. Rev. 943, 981 (2018). However, regulatory agencies’ clairvoyance is critical for their successful functioning. See e.g. Alabama-Tennessee Natural Gas Co. v. F.P.C., 359 F. 2d 318, 339 (5th Cir. 1966), 385 U.S. 847 (1966), 385 U.S. 964 (1966) (the Court admitted it is correct that the government commission’s decision depends on its understanding and reading of what it believes will happen in future, but that clairvoyance is significant part of a regulatory agency’s daily grind.)

[12] See, Huang, Keman and Madnick, Stuart E., Cyber Securing Cross-border Financial Services: Calling for a Financial Cybersecurity Action Task Force (March 1, 2020). Working Paper CISL# 2020-17, at

[13] See e.g., Croley, Steven, White House Review of Agency Rulemaking: An Empirical Investigation, 70 Univ.Chic.L.Rev. 821-885 (2003) (discussing how the OMB exerts strong agency discipline, especially in significant deregulatory periods such as under Reagan‘s administrations) accessible at:

This post comes to us from John W. Bagby, professor emeritus at Pennsylvania State University, and Nizan G. Packin, associate professor of law at the Zicklin School of Business of Baruch College, CUNY. It is based on their recent paper, “RegTech and Predictive Lawmaking: Closing the RegLag between Prospective Regulated Activity and Regulation,” available here.