“Open Regulation”

Remarks to: the United Kingdom Accreditation Service (UKAS) annual lunch, Tuesday, 15 October 2024, at the Royal Institute of British Architects, by

The Rt Hon The Lord Mayor of London, Alderman Professor Michael Mainelli

Welcome

Importance of international standards

Connect To Prosper

What is a standard?

Open Regulation

A new name?

Ladies and gentlemen,

Thank you very much Jamie [Lord Jamie Lindsay, Chairman, UKAS] for your kind words. I am delighted to address this lunch not only as the Senior Non-Executive Director of UKAS, but also as the 695th Lord Mayor of the City of London – or as I like to put it, the world’s oldest democratic workers’ and residents’ cooperative – we’ve been holding elections since the middle of the 7th century and are nearly 14 centuries old. 

From the times of the Phoenicians, Greeks, and Romans to the present day many or most standards are enforced by a commercial community, think international shipping, or by a voluntary community, think sustainable fishing.

For example, around 20 BCE Roman architect Vitruvius (Marcus Vitruvius Pollio) in his work ‘De Architectura’, described some of the safety measures used in Rome’s large thermal baths. These included a ban on flammable materials in the baths and an adherence to strict cleaning protocols.

This annual UKAS AGM is a day when we assemble and thank the entire Quality Infrastructure community for the work you do.

While we all love standards – we all detest double standards.  You have to ask yourself, why is it that when you burn a body at a crematorium you’re “doing a good job”, but if you do it at home the police say you’re “destroying evidence”. No offence to our chefs today!

Importance of international standards

The Square Mile includes 111 ancient trade guilds, who were the standard-setters of their day – and in some cases, still are, take the Goldsmiths and the assay office.

A distinguishing characteristic of our City franchise is that the 615,000 workers have the vote, along with 50,000 guild members, and 8,000 residents.

The City’s 615,000 workers and 24,000 businesses, 23,750 of whom qualify as SMEs, are split almost 1/3rd finance, 1/3 science, engineering & technology, and 1/3rd education, shipping, arts, media, and culture.  Within two miles of the Guildhall we have 40 learned societies, 70 universities, and 130 research institutes.  With 2% of the national workforce we generate 7% to 9% of GDP.

Over the past millennium you can derive four longstanding City concerns – defence & security, free trade, the rule of law, and access to talent & skills.  Standards underpin all four of our eternal concerns.

Throughout my time in office, spending 100 days visiting 25 countries, it has been clear how economic growth, the government’s main objective, depends on the ability of businesses to export their goods and services across borders.

International trade is the backbone of a strong economy; when businesses can enter new markets, they become more successful, or die; when we import better or cheaper goods from abroad we take advantage of the law of comparative advantage. 

Connect To Prosper

This year’s mayoral theme is Connect to Prosper, celebrating the many knowledge miles of our Square Mile, the world’s coffee house.  All six Connect to Prosper initiatives are based on international standards:

  • GALENOS – a multimillion-pound Oxford University-led programme across 70 countries that is improving standards in mental health research.
  • Constructing Science – has created the international standard for converting commercial premises to life sciences facilities.
  • Our Space Protection Initiative against space junk has the support of 56 nations for space debris removal insurance bonds to keep space “clutter free”, meeting international space sustainability standards.
  • The Smart Economy Networks Initiative seeks to solve trade documentation tangles using open source Nordic X-Road infrastructure.
  • Our Green Finance Initiative advocates standards for voluntary carbon markets, nature markets, carbon offtake, and sovereign sustainability-linked bonds.

I will dwell a moment on the sixth because it is topical and shows ISO and WTO in action – the 695th Lord Mayor’s Ethical AI Initiative promotes international standards, specifically ISO 42001, the AI management system, through a course, an accord, and a consensus.

Course – Since November, over 6,000 people in 600 firms across 60 countries have taken our AI course, teaching them the ethics of Principlism and ISO 42001, with courses from four global institutes and an increasing number of business schools.

Accord – Working with UKAS, BSI, and the TIC sector, the Walbrook AI Accord, named after the Mansion House address where I reside, has grown to 38 countries supporting the use of ISO 42001 for regulation, and the formation of the AI Quality Infrastructure group.

Consensus – the International Corporate Governance Network represents $77 tn of assets.  Their Coffee House Consensus asks investees and countries in which they invest to use ISO 42001.  $32 tn of the $77 tn have signed this since July and on Thursday they are launching a permanent Investor Council on Responsible AI (ICRAI).

A fortnight ago I had an amusing experience on a trip to Latvia, When I talked about IS0 42001 at a central bank roundtable,

one of the participants said that he couldn’t find any information online.

I assured him the standard was online, but he insisted ‘no’.  I asked him where he had searched.  He said ChatGPT – so maybe generative AI isn’t keen on standards for itself.  On the other hand, we in the sector might note we don’t provide open publication of our own standards.

What is a standard?

Internationally, standards lead to some deep questions; for example, what’s the difference between the USA and the USB?  One of them is a standard.

Adam Smith in 1776 emphasised that the most basic form of regulation, is competition. Competition ensures that people inform prospective purchasers of the merits of their products and the inferiority of their competitors.  Competition reveals vital information.

However, quality markets want to pull away from competing on the basics of safety or compliance.  One way to look at standards is as mutual branding.  A group or network of businesses that want to elevate the standard of competition often desire to create a better shared name. 

Competition in standards is a good thing.  Community Enforced Accreditation Markets need good answers to Screaming Lord Sutch’s sublime question, “Why is there only one Monopolies Commission?”

American ecologist Garrett Hardin posited the tragedy of the commons in 1968.  Common spaces are abused due to lack of property rights. The American political economist Elinor Ostrom countered Hardin by pointing to the many situations where commons were well-governed, such as Spanish irrigation huertas, and won a Nobel prize in2009 for her “analysis of economic governance, especially the commons”.

We have many related principles, for example, Accreditors should be audited by other accreditors. Here are some has other core principles principles of good governance of the commons, “community enforced standards markets”:

  • Accreditors and certifiers should be clearly separated and accreditors cannot certify. 
  • Accreditors and certifiers should be restricted in their ability to rewrite standards to their advantage.
  • Certifiers should be audited and competitive.

Don’t take these principles for granted – financial regulation is an example of a confused and oligopolistic regulatory system unclear of its principles. 

In an unstable world, standards define what great looks like.  Setting consistent benchmarks for businesses, consumers, and nations ensures reliability, builds trust, simplifies choices, and makes trade between countries simpler, deeper, and fairer.

I once estimated that as much as 25% to 40% of the global economy is people checking that other people are doing what they promised to do – inspectors of all sorts from auditing to tax, planning authorities, laboratories, the civil justice system, lawyers, accountants, surveyors, even sporting referees.

The global TIC market is valued at over $200 billion – and is projected to grow to more than $320 billion this decade.  Yet, while standards need enforcement, enforcement does not necessarily require intrusive government regulation – think maritime, food safety, or aviation. 

Community enforced standards markets help purchasers make better choices through markets, rather than imposing onerous regulation or spouting unenforceable principles.

Open Regulation

International standards are at the heart of Connect to Prosper – whether that be AI, smart economy networks, space debris removal insurance bonds, mental health, constructing science, or sustainable finance.  They promote excellence, they enable trade, and they foster openness.

The open movement is a collection of people, communities, and organizations that works to address global problems through collaboration, transparency, and free access. The movement includes a variety of initiatives, such as open data; open source software; open design; open access, and even a little bit of open banking.

May I suggest an ‘Open Regulation’ addition to the movement, with regulation that is easily accessible, readable and shareable. An “open regulation” movement could aim to create more transparent, inclusive, and adaptable regulatory frameworks across various sectors. Here are some potential achievements:

  • Increased Transparency
  • Stakeholder Engagement
  • Adaptive Regulations
  • Innovation Encouragement
  • Better Compliance
  • Cross-Sector Collaboration
  • Empowerment of Marginalized Voices

We can achieve this through:

  • Standards documents and guidance being publicly accessible, authoritatively and independently timestamped, and distributed freely.
  • Facilitating third parties obtaining documents, processing them into machine-readable formats, and distributing them directly and through automated tools, such as AI.
  • Plain English – The intended consumer of the rules is not a lawyer.

No disrespect to lawyers, but they are the only profession who could prepare a 10,000 word document and call it a “brief”.

The UK is great, but as I travel I genuinely see some better practices.  We must not take for granted that the UK’s nationally appointed institutions for quality are world-leaders.  We need to earn leadership, for example in open regulation, automated processes, cheaper and real-time accreditation and certification.

We need to be the centre of best global practice, from wherever it hails – in open regulation, automated processes, real-time accreditation and certification. As William Gibson said: “The future is already here – it’s just not evenly distributed.” We need open regulation for an open City. If regulation is open, then the path to responsible, reliable and resilient growth is open. We look forward to working with all of you in delivering an open future.

A new name?

I’d like to say I’m putting my standards up for adoption – because I can’t raise them anymore. But maybe it’s because we are bad at naming our ‘babies’.

We, in this room, must go out and play our part in supporting a fairer, more equitable and more sustainable international trading system, yet our standards markets are hard to explain.  We struggle, as a sector without being able to place ourselves swiftly in the spectrum from red in tooth and claw markets, to underperforming but highly regulated government.  A third way between regulation and the free market.  Better regulation.  Smarter regulation.  Investment analysts now call us Testing, Inspection and Certification.  Only a commercial subset of the entire system.

“Community enforced standards markets” is the term I would go with. But I am open to suggestions!

By distilling the wisdom of experts from around the world, international standards represent the very best of human knowledge and guide economies in adopting sustainable and ethical practices that make our world a better place.

As technology advances, maintaining those standards will be more vital than ever, and I happen to think a standard name is essential to help us share our movement with the world.

Thank you.

Further browsing:

The ‘Open Regulation’ suggestion also featured in my remarks on 17 October 2024 that same week to the City (Regulators) Dinner.

How can you be free market yet want some regulation? This was covered some time ago in a Gresham Lecture:

https://www.gresham.ac.uk/watch-now/standards-markets-free-market-response-regulation

On Z/Yen and Long Finance’s work pushing the debate between direct regulation and ‘free’ markets – this is the Long Finance ‘holding page’ for everything – https://www.longfinance.net/research/research/regulation/voluntary-standards-markets/.  Further background, perhaps staring with an interesting aside from CityAM – https://www.cityam.com/lets-end-the-government-monopoly-of-financial-regulation/ – and a summary of a 72 page report for financial services using community enforced/voluntary standards markets – Michael Mainelli and Chiara von Gunten, “Backing Market Forces: Voluntary Standards Markets And The Regulation Of Financial Services“, Securities and Investment Review, Securities & Investment Institute, November/December 2013, pages 22-23

Of course as a non-executive director of the United Kingdom Accreditation Service – www.ukas.com – all this is of great interest to me.  My key principles might interest you (not exactly UKAS or ISO policy, and a little more assertive):

  • there is an open standard available to all – many standards do not wholly fulfil this as they frequently charge significant fees for a copy of the standard, e.g. ISO affiliates such as the BSI typically charge three figures for short documents;
  • certification agencies compete for audit business – thus encouraging rational interpretation(s) of the standard and controlling cost and quality via reputational risk and competition, and the system can prove exclusion, e.g. certifiers actually mark down organisations that fail to meet the standard;
  • outputs such as certifications and grades awarded are published; ideally some benchmarking on the degree of pass or fail is given to participants;
  • ideally the certifier bears some indemnity and that indemnity can, with the price paid by the buyer, be made publicly available;
  • development of the standard is an open, structured, inclusive process involving interested stakeholders, conflicts of interest are eliminated and comparators available;
  • there is an authorised, responsible accrediting body for certification agencies, e.g. the United Kingdom Accreditation Service (UKAS) or the Marine Stewardship Council in the case of sustainable fish, that helps to ensure proportionality and consistency; accreditors ensure the separation of standards development from the commercial elements of implementation and review; accreditors regulate the market;
  • accreditors can sanction certifiers, for instance ensuring that certification is separate from improvement, e.g. there are no conflicts of interest where firms sell consultancy services to attain a standard alongside certification services;
  • accreditation bodies are independent from commercial conformity assessment activities and, unless the system is seriously flawed, accreditation is probably best left to a sole entity, i.e. non-competitive.