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Clifford Chance

Clifford Chance

Tech Group Insights

Global. Integrated. Tech Expertise.

Tech Policy Unit Horizon Scanner - April 2020

Yuval Noah Harari writes that "emergencies fast-forward historical processes". The coronavirus pandemic is a global public health crisis which is triggering a social experiment and will shape the role of technology in society for decades to come. Tech policymakers will need to respond.

As Europe becomes the epicentre of the pandemic, the EU's digital agenda and focus have unsurprisingly been impacted. But progress continues to be made on data, AI, and regulatory investigations. In the UK, the controversial Digital Services tax is due to enter into force.

In the USA, we focus on some of the largest U.S. technology companies' continued battles with national regulators, as new investigations into their corporate practices continue at pace. Meanwhile countries in Africa continue to face the challenges of increasing internet penetration, as they tackle online hate speech and fake news, and look to regulate crowdfunding platforms.

Coronavirus: Tech and the global response

Tech companies want to be part of the solution – though an Alphabet project to facilitate coronavirus testing in the USA has got off to a wobbly start. In Kenya, mobile-to-mobile money transfer service M-Pesa has been suggested as a potential countermeasure to the pandemic, with a fee-waiver being introduced to reduce the physical exchange of currency. China’s ecommerce giants are deploying robots to deliver orders, while South Korea is using an app to monitor quarantined citizens.

Tech media giants, governments, and national health services are co-operating to take action against coronavirus "fake news" online and help the public to avoid myths and misinformation. At a time where entire countries' workforces are being forced to work from home, tech companies are being forced to make difficult tradeoffs to maintain effective content moderation while protecting users' privacy.

With many EU citizens relying on good quality Internet connections to work from home, European Commissioner for the Internal Market, Thierry Breton, advised streaming platforms such as Netflix to offer standard rather than high definition services and to cooperate with telecom operators to reduce the pressure on infrastructure (Netflix promptly did so). As a precautionary measure, the Commission and the Body of European Regulators of Electronic Communications (BEREC) set up a special reporting mechanism to monitor internet traffic to be able to respond to capacity issues.

The European Commission, ENISA, CERT-EU and Europol, among others, are also working closely to ensure the safety of the EU's cyberspace. They are tracking malicious activities, raising awareness, and seeking to protect remote workers, businesses and individuals.

In the UK, the coronavirus pandemic coincides with the introduction from 20 March of the Universal Service Obligation: a legal right to request a decent broadband connection. The UK Information Commissioner's Office has extended the consultation period for its draft AI auditing framework guidance, citing the "current extraordinary circumstances". This recognises the inevitable constraints on stakeholders as they focus on their COVID-19 responses, but will also enable the consultation to benefit from any new insights that may arise out of those responses, as firms grapple with proportionality and practicality in the ultimate stress-test scenario for data privacy law.

Americas

"Big tech" remains a focus in the United States as investigations into Google, Apple, Facebook, and Amazon (the so-called "GAFA") continue

Google faces investigation by the Department of Justice (DOJ), a group of 47 state Attorney Generals (AGs) (plus those of Puerto Rico and Washington D.C.), and the House Antitrust Subcommittee. At least two state AGs have issued civil investigative demands to Google (Alphabet) and the House Antitrust Subcommittee has issued a request for information. The federal investigation includes ad tech and search, and the state AGs' investigation has expanded into Google's search and Android businesses.

Apple is reportedly under investigation by the DOJ. There are reports that the DOJ is interviewing app developers who have complained about Apple’s anticompetitive conduct.

Facebook is under investigation by the Federal Trade Commission (FTC) and reportedly also the DOJ at the order of AG Barr. Potential theories of harm include exclusionary and unfair conduct imposed against app developers ,and the WhatsApp and Instagram mergers themselves.

Amazon is under investigation by the FTC. In September 2019, there were reports that the investigation into Amazon was ramping up, with the agency conducting interviews of merchants.

The DOJ has announced that the tech investigations are broader than antitrust, and possibly include fraud. The DOJ has seen a number of personnel shifts in connection with the tech investigations as Ryan Shores joined AG Barr’s office to help coordinate the investigations. Alexander Okuliar joined the DOJ Antitrust Division as a Deputy Assistant Attorney General to help lead the tech probes.

The investigations are under pressure to create results, particularly as Congress debates whether two antitrust agencies are needed in the U.S. In December 2019, AG Barr announced he wanted to wrap up the tech probes by the end of 2020.

Asia Pacific

In China, commercial encryption testing and authentication will possibly be subject to a more comprehensive and systematic regulatory framework, as indicated by issuance of the Implementation Provisions for Test and Authentication of Commercial Encryption (Consultation Paper) by the State Administration for Market Regulation and the State Cryptography Administration.

PRC regulators have also issued a variety of national standards as recommended practical guidance to help enterprises and financial institutions handle data protection, cybersecurity and tech issues, including: personal financial information, electronic seal cryptography technology, financial distributed ledger technology, internet banking systems, and commercial bank application programming interfaces (APIs).

Ahead of the rollout of 5G, prospective operators have been keenly snapping up operating licenses in 5G spectrum auctions across the APAC region. Thailand's telecoms regulator raised US $3.2 billion at auction in February. In Japan, NTT Docomo has become the first Japanese telco to provide a smartphone service based on 5G technology.

The Japanese Cabinet has meanwhile approved a bill designed to help companies to develop and adopt 5G technologies. Under the proposed legislation, companies that meet strict cybersecurity standards stand to benefit from tax incentives and low-interest loans to develop the technologies – a measure intended in part to help firms to compete with Chinese companies such as Huawei.

Africa

Growing internet penetration in Africa has created a new platform for trolls and dissemination of fake news. Many governments have used this as a justification for harsh laws against hate speech, with laws being passed or proposed in Cameroon, Nigeria, Ethiopia and The Gambia. In November, the Nigerian Senate introduced the Protection from Internet Falsehood and Manipulations Bill, which would criminalise transmission of false facts online as well as the provision of services to transmit falsehood, and would impose high monetary penalties on internet service providers and telecoms for failing to regulate their platforms. The popularity of these proposals has prompted a strong response from a coalition of human rights groups.

On 11 February, Morocco adopted Law 15-18 on Collaborative Funding, providing a legal framework for crowdfunding after several years of government debate. The aim of the law is to foster innovation by opening up crowdfunding for small businesses and start-ups. Features of the law include a mechanism for accreditation of Collaborative Financing Platforms through the Central Bank, regulating the security of e-transfers, and public reporting obligations.

The US International Development Finance Corporation has pledged USD 5 billion for investments in Ethiopia over 3-5 years in an effort to support private-sector reform. This announcement follows the ratification of a new Investment Proclamation which, inter alia, grants new powers to the Ethiopian Communication Authority to issue and manage investment permits for investors in the telecommunications sector. Reform in that sector is already underway, with the proposed sale of a minority stake in State-owned Ethio Telecom to one or several foreign firms, as well as plans to license two additional telecoms providers in the country – moves that will end the incumbent's monopoly over internet and telephone services in Ethiopia.

Europe

The Commission continues to encourage stakeholders to respond to its consultations: "On Artificial Intelligence - A European approach to excellence and trust" and the "European Strategy for Data". In light of developments with the coronavirus, however, questions are being asked about the proposed EU approach on these topics, in particular whether they would be able to grant access to high quality data in a timely manner. The deadline for contributions on artificial intelligence is 19 May 2020, and on data is 31 May 2020.

On 16 March, the competition authority in France fined Apple over €1 billion for a series of abuses in France relating to the distribution of its electronics products, with the exception of iPhones. The fine covers the period from 2005 to 2017. Two wholesalers, Tech Data and Ingram Micro, were also fined, €76 million and €62 million respectively, for anticompetitive agreement practices.

The UK will enforce its radical Digital Services Tax from April 2020

Any prospect that the UK might postpone its controversial digital services tax (DST) vanished in the March 2020 Budget, when the government confirmed that it will take effect in April 2020.

The government has now published revised legislation, just two weeks before its implementation, which contains extensive changes and leaves little time to prepare.

The DST departs from the traditional allocation of taxation rights between states. It does so by imposing UK tax on digital businesses, even where they lack a UK taxable presence, on the basis of gross revenues deriving from UK users. This represents a crude proxy for the value generated by UK users on those sites but, in the absence of global agreement to reform the tax treatment of digital businesses, these kind of unilateral measures are the only option countries have if they want to increase taxes on the US digital giants. We have therefore seen a wave of similar DSTs across Europe – and that itself has led the US to threaten retaliation (either through taxes or tariffs). The UK says it will repeal the tax if a global solution is introduced, and it is possible this would be before the first annual payment of the tax is due. However in our judgment it is more likely that no global agreement will be reached, and therefore DSTs (and the potential for retaliation) will remain for the long term.

One important change from the original legislation is a more workable exemption for financial services. This is critical to avoid the anomaly of exchanges, trading venues and post-trade services being subject to a tax that is not aimed at them. Previously there was a "two factor" test which meant that only providers with a particular regulatory status could benefit from the exemption. That was potentially distortive and anti-competitive. The exemption now works on the much more sensible basis of looking at what is traded on the platform. Given the approaching deadline for implementation, Fintech and banks alike will want to check whether any platforms they operate are covered.

Middle East

The Dubai International Financial Centre FinTech Hive: Four years on

The Dubai International Financial Centre (DIFC) Fintech Hive, the first and largest financial technology accelerator in the Middle East, Africa and South Asia, has expanded its operations. Three accelerator programmes now operate from the space, with the newly-established FinTech Hive Scale Up programme focussed on enabling Series A+ start-up companies to develop strategic partnerships. Founded in 2017, the DIFC Fintech Hive has seen considerable success, with the 80 startups to have benefitted from these accelerator programmes having raised over US $120 million between them. The DIFC has also entered into a memorandum of understanding with Tribe Accelerator, a Singapore government-supported Blockchain accelerator.

The UAE is leading the Middle East and North Africa's (MENA) fintech market, with the value of the MENA fintech market being projected to reach US $2.5 billion by 2022.