The Retailer Summer Edition_2020

Existing regulation of AI in the EU/UK • GDPR • Anti-discrimination rules • Product safety and liability • Health and safety at work Overview In the first BRC Legal Community event dedicated to the future of digital retailing, deliver d in partnership with Said Business School, attendees heard from a range of academics, industry experts, legal specialists, technology providers and regulators. There was strong agreement about the key themes which need careful attention if retailers are to maximise the success of the rollout of new technology, not least AI, and harness its benefits successfully for consumers. There was also an understanding that any new regulation ne ds to take into account a proportionate approach for trustworthy businesses. The 10 key themes and challenges identifie 1 The need for regulators and consumers to 8 Regulators need to be careful when considering marketplaces and small businesses: Creating ew or pecialis d mechanisms for regulating marketplaces can add t the burd ns on the SMEs which use them. Regulation itself can become a barrier to en ry. New regulation tha is essentially target d at the activities of social media platforms should not automatically cover m rketplaces In the second half of the forum, regulators identified many of the key areas which are currently under consideratio includ ng: 1. Utilisation and regulation of AI and Machine Learning (EU proposal pending) 2. Personalised and drip pricing bas d on etailed individual profiling 3. Marketing and advertising fairly online 4. Digital identity, facial recognition and effective age verification 5. Internet of Things – liability; safety; security; • Platform to business regulation • Consumer protection • Competition rules RETAIL IN THE DIGITAL ERA FORUM KEY THEMES, CHALLENGES AND GETTING INVOLVED

Aims of Regulation • Create and maintain consumer trust – privacy; transparency; data protection • Provide incentive to innovate rather than barriers • Ensure market access and a competitive environment • Take consumers with you – consumer behaviour and reaction to technology is not fixed- it can be undermined And so to the UK The issue of the approach to be taken by the UK remained unresolved. Key questions and initial views include: • Would the UK setting up its regime in advance of others lead to an advantage given it is the leader in Europe? Open for debate. • Would businesses adopt the highest level approach anyway to avoid a dual regime internally? Quite possibly. • Was any regulation necessary beyond what is there? Quite possibly not. • Would a special AI regulator with real expertise be necessary to really enforce any rules? Has attractions because it would need people with expertise. • Would sectoral regulations be better suited to retail? Only if they recognised retail uses AI in two distinct ways.Would the UK have a better enforcement regime where securing compliance and ethical regulation are the keys rather than excessive fines? Open for debate as the trend seems to be moving in the other direction. Future Focus: We will examine these issues in a further meeting when we will also ask what a retail specific regime would look like. 4 Consumers have access to increasingly ubiquitous product data: Smartphone technology means that consumers have constant access to data about price, quality and availability of a given product. The ability to monitor and compare price movements has particular relevance in a legal context as well as having a potential benefit for consumers. 5 Consumer behaviour and reaction to technology is not fixed: Where use of a given new technology (eg provision of personal or biometric data or facial recognition to track a regular customer) may be viewed as ‘cr epy’ by some, in oth r cultures, geogr p ies or groups the reaction may be quite different. Similarly attitudes can change over time, as customers become more confident their data is being treated in a trustworthy manner. 6 Consumer trust in new technology and its application is crucial: For a new technology to achieve its goals it needs to be understood, trusted by and deliver successfully for consumers. Low levels of trust (for example in relation to retailers’ ability to handle ensitive data), whether justified or not, can have a mat ri l impact o the success of a new product or service and l ad to pressure o regulators for new regulation. 7 A seamless digital identity is key: Ensuring that customers are recognised and responded to effectively, seamlessly and consistently at any of the touchpoints they may have with a company (online, in store, while browsing) is essential to serving them well. However, this requir s e ective and prop rtionate authentication and appropriate customer consent mechanisms. hacking; IP; data collection and ownership; consent; transparency (UK pr posals pending) 6. Data ownership by consumers and privacy and transparency 7. Data ownershi by businesses a d implications for co petition and innovation – knowledg is power 8. Online advertising enforcem nt and scam busting The BRC is o planning a s ries of roundtables to explore these and other topics in more d pth. He ding the list will be Internet of Things; AI Regulation; and Competition issues – depending on availabili y of relevant participants from the regulators. To express an interest in being k pt informed and joining these roundtables contact,uk

EU v USA models The EU model is based on upholding fundamental human rights; trust via a clear regulatory framework; a focus on high risk products and services with testing prior to market launch; and a voluntary labelling scheme for other AI enabled products to show whether the manufacturer of non high risk products observes the voluntary aspects of the regulatory framework. High risk products would require human oversight and information requirements. A high risk product would include ‘specific applications affecting consumer rights’. The regime would apply to any business trading with the EU. The USA model emphasises the promotion of innovation above all else and avoiding excessively high standards but where possible maintaining public trust and flexibility. understand the true nature of AI and associated digital technologies – including use of algorithms; machine learning; big data; blockchain etc – and how they are (and could be) used to benefit consumers. 2 Accurate assessment of the benifit of theses technologies: Economic hype ac ompanying the development of a new technology sometimes fails to match th reality. Use of obscure jargon or associated terms can limit t e ability of businesses to accurately assess the impact. Digital transformations frequently fail wh n companies disregar the value of their l gacy systems, do not pay sufficie t att ntion to the need for cultural evolution and/or adopt a ‘big bang’ approach to introducing change. 3 Legislativ lag can ometimes be detrimental – but sometimes lead to better regulation and more innovation nce the new technology is fully understood: While rushing to regulate a new technology was not viewed by attendees to be desirable (indeed whether regulating a technology rather than its uses or those who use it was a sensible approach), there was general agreement that the development of legislation over long time scales can mean that the problem being targeted is either no longer relevant or has changed in definition. At the same time, there is a trade off between legislative clarity and certainty. The first step should be to assess whether existing regulations or approaches in fact cover – or can be adapted to cover - the uses of the new technology. unless their activities are the same as those of the social media platforms. Only undesirable activities should be targeted not the fact that platforms and marketplaces are both online. 9 Understanding the shortfall in colleague knowledge and/or talent is essential: Skills shortages and skills gaps can mean that companies may find it difficult to secure the right people at th right time to develop and imple ent appropriate technological solutions. It can also be difficult to recruit the right people with t e right knowledge at director or board level to take co porate responsibility for how the new technology is used – which is ess ntial for a trustwor y business. 10 Deterrence is less effective than incentive: Compliance and rules-based approaches can have unintended outcomes. Positive incentives frequently work much better. Fines levied on companies sometimes just become part of the cost of doing business to the detriment of an inbuilt ethical approach to business that embodies a genuine desire to act appropriately, legally and ethically.

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