What is norm engineering in RegTech, and why does it matter?

In our day and age, being compliant with regional, national and international laws and regulations is highly important. Many industries, especially finance, banking, transportation and international trade, have experienced an increase in regulations and reporting requirements. This has led to the emergence of various technologies and solutions that help organizations devise better compliance strategies and workflows.

Regulatory technology (RegTech) is increasingly empowering organizations with the tools to improve efficiency and sustainability in their regulatory compliance functions. RegTech can be defined as the use of new technologies to address the increasingly dense data landscape required to meet regulatory compliance challenges.

Norm engineering is a relatively new term in RegTech and is quickly gaining traction and recognition. But what is norm engineering? What role can it play in RegTech? And what are the benefits and opportunities that norm engineering offers for increasing the efficiency of compliance management? Read on and find out!

What is norm engineering?

Norm engineering translates legal texts into practical specifications or directly executable models. It identifies decisions, norms, and evaluation grounds, essentially turning legal grammar into tangible knowledge models (often AI-powered) that aim to capture facts with clarity. This involves encapsulating shared understandings and details without being explicitly stated. Various projects (Psych, CYC, Watson, etc.) and initiatives of Google and OpenAI, are dedicated to establishing comprehensive and standardized definitions across different domains.

Nevertheless, dealing with legal language presents distinct challenges. Mainly, because rules cannot be directly articulated in the same straightforward manner as everyday speech. Historically, the solution was often to use lines of code within languages like Prologue. This resulted in a format that hindered effective analysis. Norm engineering represents a paradigm shift in this approach. It converts rules into data, facilitating more robust analysis and querying capabilities.

Machine-readable regulations and standardization

Machine-readable regulations (MRR) and standardization are two distinct core concepts in the world of norm engineering. The first converts regulatory texts into a structured format that can be easily understood and processed by machines. The latter looks at dependencies between and common elements of a legal text to establish the important ones for your implementation and compliance management. The combination of MRR and standardization allows you to conceptualize elements and makes them part of the legal text.

The benefits of norm engineering

The rise and adoption of norm engineering has many potential benefits. Let’s take a quick look at the most important ones.

Transcending the limitations of traditional rule-based coding

The transformative shift norm engineering presents enables tasks like retrieving information on individuals born in a specific year or identifying regulations governing the usage of water or energy in industrial facilities, drawing from many sources. By transcending the limitations of traditional rule-based coding, norm engineering unleashes the potential for comprehensive understanding and utilization of complex legal frameworks. Once you know what a decision is in a legal text or establish a ground for a decision, you can effectively make a concept out of it.

Scalability and repeatability

Using standards in norm engineering enhances scalability and repeatability, providing a structured foundation for analysis. Applying standards across diverse regulatory domains poses a challenge due to significant variations in regulations. That’s why flexible standards are necessary to accommodate these differences while still facilitating effective analysis.

Establishing the relation between norms and grounds

Making compliance decisions requires the use of norms and grounds, two essential components of legal grammar. Norm engineering gives you the opportunity to pinpoint the relation between them in an early stage. This allows you to get all the decision building blocks and make effective well-informed and data-driven compliance decisions at the right time.

Creating better decision-making processes

Leveraging standards, standardization techniques, machine-readable regulations, and, in certain cases also AI, can greatly enhance the work of analysts. These fantastic four are the tools that make it possible to streamline tasks, eliminate boring and error-prone repetitive work, and ultimately create better decision-making processes.

Making better laws and regulations

Applying norm engineering and adopting machine-readable regulations also allows governments to streamline lawmaking processes and to largely close the gap between lawmaking and implementation. Machine-readable regulations enable the identification of key elements and their definitions. This aids in streamlining the process and facilitating the easier translation of text, norms, and grounds into real-world implementations. The result? More effective laws and coherent regulations that can be integrated seamlessly into commercial practices. This benefits both governments and businesses.

Fostering innovations

The introduction of new products and services would become far more agile and accessible if norm engineering were to be used on a large scale. To give you an example, current regulatory ambiguities, such as those surrounding cryptocurrencies, stifle innovation. However, with norm engineering facilitating compliance and regulatory clarity, banks could swiftly introduce novel offerings, fostering a wave of innovation within the financial industry. The convergence of technology and regulation has the potential to disrupt traditional business models and unleash a wave of creativity and competition. This change will ultimately benefit consumers and drive sector-wide advancement in many industries.

The obstacles

Lawmakers and entrenched industries often favor traditional approaches and tend to include ambiguous terms in their texts (creating opportunities to allow for interpretation in various circumstances). This can be an obstacle to the widespread use of norm engineering in the field of lawmaking and compliance management. Additionally, merely examining the law itself is often insufficient. One must also consider its history and how it has been interpreted in various jurisdictions. Encoding the knowledge of a single rule often necessitates delving into centuries’ worth of rules and cases.

The good news is that we expect increased collaboration between IT and legal teams to enhance the understanding of norm engineering and machine-readable regulations. And therefore, to eventually lead to better laws and more effective, less error-prone compliance management processes.

Norm engineering and Be Informed

Together with TNO and the University of Amsterdam, Be Informed is working with industrial partners and governments on a norm engineering program. The aim of this program is to develop methods and instruments that allow organizations to unambiguously and explicitly record and share interpretations of legislation and regulations. The open structured language (FLINT) records and communicates this explicit interpretation of norms in the social, ethical and legal domains. This makes them understandable to humans and enables automatic reasoning by machines.

Are you ready to reap the benefits of norm engineering and machine-readable regulations? And would you like to discover how the Be Informed platform can improve compliance in your organization? Then be sure to contact us. You can give us a call at +31 (0) 55 368 1420, send an email to contact@beinformed.nl or fill out the contact form on our website.

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