This blog was co-authored by Evan Wright and Elisha Kaur.

The European Union (EU) has taken an important step towards regulating artificial intelligence (AI) with the introduction of the AI Act, which came into force on August 1, 2024. This legislation aims to ensure the transparent and ethical use of AI, whilst balancing innovation and protection of fundamental rights. What are the key aspects of the AI Act and its impact on the market? Who is saying what about the Act and what are the most common questions?

Key Provisions of the AI Act

Much like the basis upon which professional regulatory authorities operate, the AI Act applies a risk-based approach to AI regulation, placing AI systems into four risk levels: minimal risk, specific transparency risk, high risk, and unacceptable risk. Each category has its own set of requirements and obligations:

Minimal Risk: Systems such as spam filters and AI-enabled video games face no obligations under the Act, but can voluntarily adopt a code of conduct.

Specific Transparency Risk: Chatbots must inform users that they are interacting with a machine, and certain AI-generated content must also be labelled as such.

High Risk: High-risk AI systems, such as AI-based medical software or recruitment systems must comply with strict requirements, including high-quality data sets, risk-mitigation systems, clear user information and human oversight.

Unacceptable Risk: This category includes systems posing a clear threat to fundamental rights, such as social scoring by governments or companies. These are prohibited under the Act.

The Act also establishes the AI Office within the European Commission. It is responsible for drawing up of codes of practice, developing compliance tools, and ensuring effective implementation of the Act itself.

Industry Leaders' Commentary

There have been mixed reactions to the AI Act amongst industry leaders. Although some praise the Act for its comprehensive approach, others voice concerns about its potential impact on innovation and competitiveness.

Mark Zuckerberg, CEO of Meta, criticized the EU's regulatory environment, arguing that it delays or halts the rollout of new AI services. He argues that the slow decision-making process prevents Europeans from accessing the latest AI technologies. He has urged European regulators to apply the principles of the AI Act pragmatically and transparently.

On the other hand, Julie Lübken, a digital policy consultant, views the AI Act as a real opportunity for global AI governance. She believes the EU's proactive approach to AI regulation can promote responsible AI development worldwide and set a global standard.

Legal experts have underlined the importance of effective enforcement. Professors Oskar J. Gstrein, Noman Halleem, and Andrej Zwitter from the University of Groningen have said that the AI Office needs to be adequately staffed, promoted and integrated to ensure consistent enforcement across EU member states. They caution against the potential for uneven enforcement due to varying priorities, resources and AI literacy among member states.

Legal Impact on the Market

The AI Act imposes significant obligations on businesses operating in (and with) the EU, particularly those developing and deploying high-risk AI systems. Obligations include implementing risk management frameworks, conducting audits and complying with various standards and guidelines. Non-compliance can mean substantial fines, up to €30 million or 7% of a business's global annual revenue.

The AI Act presents challenges and opportunities for businesses. Ensuring and maintaining compliance may be costly and time-consuming, especially for those using high-risk AI technologies. However, the Act aims to enhance customer trust and minimize risks, which is supposed to benefit businesses in the long run.

Common Questions About the AI Act

What is the EU AI Act? The EU AI Act, also known as the "Proposal for a Regulation Laying Down Harmonised Rules On Artificial Intelligence," is a comprehensive set of rules for AI users, developers, and providers. It aims to ensure the ethical and transparent use of AI technologies while protecting fundamental rights.

Why was the AI Act proposed? The AI Act recognises and wishes to harness the potential of AI for societal and industrial benefits whilst ensuring that individuals are protected and responsible AI practices are promoted. It addresses risks to health, safety and fundamental rights. It aims to ensure legal certainty and to avoid fragmented regulatory responses.

Who is subject to the AI Act? The AI Act applies to both public and private stakeholders inside and outside the EU, as long as the AI system is placed on the Union market or has an impact on people located in the EU. This includes importers, providers, deployers and distributors of AI systems amongst others.

What are the penalties for non-compliance with the AI Act? Non-compliance with the Act can result in fines of up to €30 million or 7% of a business's global annual revenue. The Act also includes provisions for post-market monitoring, information sharing, and enforcement to ensure compliance.

Conclusion

The European Union's AI Act represents an important milestone in the regulation of artificial intelligence. By establishing a comprehensive legal framework, the Act aims to balance the protection of fundamental rights with innovation and wider societal benefits. Although the legislation presents challenges for businesses, it also offers opportunities to enhance customer trust and promote responsible AI development. It has attracted criticism for being too prescriptive and too broad in its reach. The impact on competition remains to be assessed, particularly in parts of the world outside the EU’s influence. As with any other piece of legislation incorporating heavy sanctions, will breaches be properly enforced? Will the penalties be harsh enough to prevent future breaches, or will fines be regarded as a business expense when compared with the potential profits AI brings? Enforcement will need to be on the basis of clear guidance to ensure consistency. As the AI Act continues to be implemented and enforcement gathers steam, it will be crucial for businesses to stay informed and adapt to the evolving regulatory landscape.