This is the last instalment in a three-part series examining how new European Union rules affecting artificial intelligence will affect development and the use of AI and what this means for the private banking and wealth management community.

This is the last instalment in a three-part series examining how EU legislation affects the world of AI. (See parts one and two.)

Artificial intelligence (AI) continues to be the focus of increasing public attention; board members at wealth management firms and financial institutions around the world need to take AI technologies seriously. This article – from compliance, regulatory, and legal experts – includes discussions on AI’s impact on financial services and wealth management firms, what firms in the industry can do, and suggests a potential path forward. In light of recent stories and euphoria concerning AI and its reported capability to drive the biggest labour market shift since the industrial revolution, we are writing three articles on the topic from personnel at CMS Law (Charles Kerrigan and Isabel Neelands) and AI & Partners (Sean Musch and Michael Charles Borrelli). 

AI is a topic of such significance that it needs thorough consideration. Readers are aware that we have to provide actionable ideas as to what the problems are, and suggestions about how to deal with them.

(The editors are pleased to share this content, and invite feedback. As ever, any views of outside contributors are subject to editorial disclaimers. We invite debate and feedback, so please email tom.burroughes@wealthbriefing.com. )

AI has global implications, requiring robust safeguards 

Reduced concern of unilateral regulatory consolidation
The European Commission’s proposed Harmonised Rules on Artificial Intelligence (the EU AI Act) aspires to establish the first comprehensive regulatory scheme for artificial intelligence, but its impact is felt beyond the EU’s borders. Indeed some EU policymakers believe it is a critical goal of the EU AI Act to be the first to set a worldwide standard on AI regulation, to the extent that some refer to a “race to regulate AI” (1). This framing implies that there is both value in regulating AI systems, and that being among the first major governments to do so will have broad global impact to the benefit of the EU – often referred to as the “Brussels Effect.” 

However, while some components of the EU AI Act will have profound effects on global markets, Europe by itself will not be setting a comprehensive new international standard for AI. 

Firms with cross-border operations need to take note
The EU AI Act will affect non-EU businesses even if they do not have a legal presence in the EU. The global scope is due to the European Commission’s heightened concern about the possibility for harm embedded in AI systems and its potential impact on the fundamental rights, safety, security, and freedoms of individuals. 

While multinational AI providers may be glad to have one set of rules, the extraterritorial scope will raise potential compliance challenges, particularly for providers of high-risk AI systems established outside of the EU who may not be aware of or able to determine where the outputs of their AI systems are used (see Figure 1).

It is possible that output of the AI system will be used in the EU by users of the AI system without the provider’s knowledge.

Figure 1: Extra-Territorial Application of the EU AI Act

Lots of AI-fuelled exciting opportunities exist 

Ongoing compliance remains paramount
The key takeaway from our exploration of the EU AI Act's implications is the importance of proactive measures. Firms, as always, must diligently assess their AI systems and processes, ensuring full alignment with the EU AI Act’s guidelines to mitigate potential risks and liabilities. 

Moreover, by prioritising compliance, they can safeguard their reputation and enhance client confidence in an increasingly AI-driven landscape.

Power of partnerships
Navigating the complexities of AI regulation calls for collaboration and expertise. Partnerships with AI compliance specialists provide organisations with access to deep knowledge and experience in AI compliance. Use of AI compliance specialists can be seen as a strategic move, providing invaluable reassurance in an increasingly complex business world. By leveraging the expertise of trusted advisors, firms can navigate AI regulation successfully, empowering them to make the most of AI's transformative capabilities.

Proceed with caution, with an innovation-first mindset
As we look forward, the potential of AI across industries is both thrilling and promising. Under the regulatory framework provided by the EU AI Act, the global economy is primed to embrace AI responsibly, ensuring transparency, fairness, and accountability. 

Organisations will be empowered to make well-informed, data-driven decisions, driving enhanced client experiences, and delivering tailored solutions that cater to individual needs and aspirations. We can all agree that the future of AI is built on a foundation of compliance, collaboration, and responsibility. By proactively embracing the EU AI Act, businesses can unlock the true potential of AI, redefining the landscape and elevating the industry to new heights of success.

Footnote:

1, https://www.fca.org.uk/insight/ai-transparency-financial-services-why-what-who-and-when