Regulatory Innovation and Permission to Fail: The Case of Suptech

Abstract

The recent U.S. Supreme Court decision West Virginia v. EPA has cast a pall over the discretion of administrative agencies at a very inopportune time. The private sector is currently adopting new technologies at a rapid pace, and as regulated industries become more technologically complex, administrative agencies must innovate technological tools of their own in order to keep up. Agencies will increasingly struggle to do their jobs without that innovation, but the private sector is afforded something that is both critical to the innovation process, and often denied to administrative agencies: “permission to fail.” Without some grace for the inevitable stumbles that come with developing new technological solutions, regulatory agencies will increasingly be unable to discharge their statutory mandates, resulting in failures of in-action that could harm the public interest.

To illustrate this point, this Article uses “suptech” case studies drawn from the world of financial regulation. After articulating both the necessity and pitfalls of suptech, this Article argues that we need to extend permission to fail to administrative agencies when similar failures are recognized as a necessary part of the private sector innovation process. This Article argues that “permission to fail” cannot be a purely legal construct, and so it seeks to spur an interdisciplinary debate about how to construct both law and public opinion in a way that allows the regulatory state to develop the technological tools it needs to respond to technological developments in regulated industries.

Keywords: financial regulation; suptech; administrative law; innovation