From Regulation 1.0 to 2.0

Technological changes are driving market changes that will call for new forms of regulation.

This series of essays draws on Kara M. Stein’s 2023 Distinguished Lecture on Regulation delivered at the University of Pennsylvania Carey Law School in March 2023.

In her lecture, Stein, a Board Member of the Public Company Accounting Oversight Board (PCAOB), addresses the rapid technological changes that are rippling through the economy, especially with the introduction of new forms of artificial intelligence (AI). She argues that these changes necessitate changing the “regulatory paradigm.”

Stein chronicles the modern history of regulation—what she terms “Regulation 1.0”—by reference to the creation of regulatory agencies that were established primarily to require and process paperwork and to target people. But then she asks: What should regulators do in an increasingly digital world that no longer relies on paper and in which autonomous AI systems increasingly replace people as decision-makers?

The answer that Stein sketches—of a “Regulation 2.0”—would have regulators themselves make use of some of the same kinds of AI technology to enhance their work. Beyond that, Stein sees a new system of Regulation 2.0 still in the making. The next generation of lawyers, innovators, and government officials with play critical roles in determining how government can best oversee the dramatic technological advances that are disrupting the economy. She suggests that ongoing vigilance in the face of technological changes will be vital to protect the public from harmful side effects from the use of new digital tools.

Stein was appointed to the PCAOB by the Securities and Exchange Commission in 2021. Previously, she served as an SEC Commissioner from 2013 to 2019. On the Commission she advocated for enhancing the agency’s ability to monitor and respond to the ways that digital technologies have been transforming market conduct.

Stein also previously served as Senior Policy Advisor for U.S. Senator Jack Reed on securities and banking matters and as the Majority Staff Director of the Securities, Insurance, and Investment Subcommittee of the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

Prior to her current appointment to PCAOB, Stein served as a Distinguished Policy Fellow and Lecturer-in-Law at the University of Pennsylvania Carey Law School and was Director of the AI, Data, and Capital Markets Initiative at the Center on Innovation, University of California Hastings Law. She holds a J.D. from Yale Law School and a B.A. from Yale College.