Return of the Online Safety Bill

The first month of Rishi Sunak’s premiership has been full of speculation about which of Boris Johnson’s 2019 manifesto pledges he will keep and which he will scrap.

One of the most contentious pieces of legislation coming down the track is the Online Safety Bill. It has been confirmed that the Culture Secretary, Michelle Donelan, is ready to present an amended version of the Bill to MPs after progress on it stalled due to recent political turmoil.

The Bill is intended to regulate social media platforms with the threat of criminal sanctions, including jail terms and fines, if firms do not regulate content. The Bill would assign Ofcom as the enforcement agency for a new “duty of care” that would be placed on platforms included in the scope of the legislation.

With the UK cementing a reputation as the capital of tech investment in Europe, implementing a regulatory framework that is fit for purpose is crucial. Regulatory stability is a core risk assessment tool that can determine the appetite for tech investment.

Coming out of Covid, countries around the world have faced economic downturns, and the tech sector has not been immune. Many firms have cut their online advertising budgets and now some of the largest tech businesses, including Amazon and Meta, are laying off staff.

Investors have also piled on the pressure to cut costs, accusing tech firms of being too slow to react to warnings of an economic slowdown. Now that tech companies are not growing at astronomical rates, investor scrutiny has swung to profitability.

Many investors, faced with inflation, and rising interest rates, are gravitating towards more traditional sectors like energy and consumer staples that deliver tangible goods, make a profit and reward shareholders. Staple stocks are often viewed positively by investors during times of economic uncertainty.

There are obvious headwinds in 2023 for tech companies, and with this backdrop of instability, it is even more important that the sector keeps up with regulatory changes.

Tech businesses have been calling for legal clarity during the period of extensive parliamentary scrutiny of the Online Safety Bill so that they can prepare for the new regulations. New laws contained in the Bill will be applied to companies that host user-generated content, such as images, videos, comments and messaging. The Government estimates around 25,000 search and user-to-user platforms will fall under the scope of the legislation.

With two-thirds of adults concerned about harmful content online, the Online Safety Bill presents an opportunity for investors looking to generate healthy returns in the UK tech space. Tighter regulation will drive out bad actors and grow market share for well-regulated platforms, and there will be a cooling-off period before enforcement activity is initiated, minimising the risk of hefty fines. An online safety regime that is workable and adopts the Government’s aims of addressing illegal content online would make the UK a safer environment for users, where tech companies will have clear responsibilities and greater accountability.

The proposed framework includes giving the regulator powers to compel tech companies to publish annual transparency reports on the content on their platforms. This will incentivise online-service providers to become best in class and allow investors to make informed choices.

Better intelligence sharing on evolving online harms will enable tech businesses to develop products that are safe and less exposed to risk. The Bill proposes a “Safety by Design” framework that’s intended to help companies include online safety features in new apps and platforms from the start of production.

Tech regulation is often presented as a problem child, but it could tackle many of the challenges the digital economy faces. Regulation brings certainty and is critical to value creation. Failing to keep on top of evolving technological trends and threats could have major implications for UK based tech businesses, particularly when other countries are bringing in their own regulations.

There is a fear that the Online Safety Bill could hurt small businesses by hitting them with additional costs, but any teething issues are expected to be temporary and in the long-term, it is anticipated the Bill will boost the competitiveness of smaller tech firms as it disproportionally impacts Big Tech. Curbing the influence of Big Tech will present new opportunities for private equity as it will spur smaller competitors and innovation in the digital market.  If investors aspire to identify the future winners in the tech space, their first concern should be understanding the rules which will govern it.