New legislation governing AI is now in place across the European Union – a development that also affects firms outside the bloc that trade with it. This article considers the new regulatory landscape.

The following article comes from AI & Partners, an organisation operating in Amsterdam, Singapore and London. It discusses new European Union legislation that seeks to regulate artificial intelligence, or AI. This is a crucial area for commerce in the EU bloc. Nations and transnational organisations such as the EU are trying to craft regulations for AI that strike a balance, so framers hope, between enabling innovation and growth, on one side, and avoiding harms, on the other. The private banking and wealth management sector has much at stake: HNW clients invest in AI-related firms, and the industry is also being affected by AI in a variety of ways. The authors are Sean Musch, Michael Borrelli, and Jim Duffy of AI & Partners, and Charles Kerrigan of CMS UK.

The editors of this news service are pleased to share these insights. As ever, the editors don’t necessarily endorse the views of outside contributors and invite readers to respond. To do so, email tom.burroughes@wealthbriefing.com

The European Union officially published the Artificial Intelligence Act in the Official Journal of the European Union, marking a significant milestone in the regulation of AI technologies. This comprehensive legislative framework aims to ensure the safe, transparent, and ethical use of AI within the EU, while fostering innovation and protecting fundamental rights. For businesses, including those in the wealth management industry, the EU AI Act brings both opportunities and challenges. This article explores the key provisions of the Act and their implications for businesses operating in the EU.

Overview of the EU AI Act
The EU AI Act is designed to regulate the development, deployment, and use of AI systems within the EU. It aims to create a harmonised legal framework that promotes trustworthy AI, protects fundamental rights, and ensures the safety and security of AI systems. The Act will be structured into several key areas, including general provisions, classification of AI systems, obligations for providers and deployers, transparency requirements, measures to support innovation, and governance and enforcement mechanisms.

Key provisions and their implications for businesses classification of AI systems
The Act will classify AI systems into different categories based on their risk levels. High-risk AI systems, general-purpose AI models, and AI systems with systemic risk will be subject to varying degrees of regulatory scrutiny.

-- High-risk AI systems: These systems will be identified based on their potential impact on safety and fundamental rights. Businesses deploying high-risk AI systems must comply with stringent requirements, including risk management, transparency, and conformity assessment procedures.
-- General-purpose AI models: These models, capable of performing a wide range of tasks and integrating into various applications, will require providers to adhere to specific obligations, such as maintaining up-to-date technical documentation and ensuring transparency on the model's capabilities and limitations.
-- Systemic risk: The European Commission will have the authority to designate certain general-purpose AI models as having systemic risk if they possess high-impact capabilities or significantly affect the market.

Obligations for providers and deployers
Businesses that develop, deploy, or use AI systems will need to comply with various obligations to ensure the safety, transparency, and accountability of their AI technologies.

-- Risk management: Providers of high-risk AI systems must implement robust risk management systems to identify, assess, and mitigate potential risks. This includes conducting regular audits and assessments to ensure compliance with regulatory requirements.
-- Transparency: Providers and deployers must maintain detailed documentation of their AI systems' design, development, and deployment processes. This will ensure accountability and facilitate regulatory oversight.
-- Incident reporting: Providers of general-purpose AI models with systemic risk must report serious incidents and corrective measures to the AI Office and national authorities without undue delay.

Transparency obligations
The Act will mandate transparency obligations for certain AI systems to ensure that users and affected persons are informed about the AI systems they interact with.

-- Disclosure requirements: Deployers of AI systems that generate or manipulate content, such as deep fakes, must disclose that the content has been artificially generated or manipulated.
-- Public awareness: The Act will encourage the development of AI literacy tools and public awareness campaigns to educate stakeholders about the benefits, risks, and safeguards associated with AI technologies.

Measures to support innovation
The Act will include several measures to support innovation and foster the development of trustworthy AI technologies.

-- Regulatory sandboxes: The Act will encourage the establishment of AI regulatory sandboxes, which provide a controlled environment for developing, testing, and validating innovative AI systems. These sandboxes facilitate safe experimentation and help identify and mitigate potential risks early in the development process.

-- Support for SMEs: The Act will include specific provisions to support small and medium-sized enterprises (SMEs) and startups, including priority access to regulatory sandboxes, reduced fees for conformity assessment, and tailored awareness-raising and training activities.

Governance and enforcement
The Act will establish robust governance and enforcement mechanisms to ensure effective implementation and compliance.

-- AI Office: The Act will establish the AI Office to develop Union expertise and capabilities in AI, coordinate regulatory activities, and ensure effective implementation and enforcement of the regulation.

-- Market surveillance: The Act will outline the roles and responsibilities of market surveillance authorities in monitoring compliance and enforcing the regulation. These authorities will be empowered to conduct inspections, investigations, and audits to ensure that AI systems meet the required standards.

What It means for businesses
The anticipated publication of the EU AI Act in the Official Journal of the European Union will signal a new era for businesses operating in the EU. Here are some key takeaways for businesses, particularly in the wealth management industry:

Compliance and risk management
Businesses will need to ensure that their AI systems comply with the regulatory requirements set out in the Act. This includes implementing robust risk management systems, maintaining detailed documentation, and conducting regular audits and assessments. Non-compliance could result in significant penalties and reputational damage.

Transparency and accountability
Transparency and accountability will be core principles of the Act. Businesses must ensure that their AI systems are transparent and that users and affected persons are informed about the AI systems they interact with. This includes disclosing the use of AI-generated or manipulated content and providing clear information about the capabilities and limitations of AI systems.

Innovation and competitive advantage
The Act will provide opportunities for businesses to innovate and gain a competitive advantage. Regulatory sandboxes and support for SMEs will facilitate the development and testing of innovative AI systems in a controlled environment. Businesses that invest in trustworthy and ethical AI technologies can differentiate themselves in the market and build trust with consumers and stakeholders.

Cross-border cooperation
The Act will emphasise the importance of cross-border cooperation in regulating AI technologies. Businesses operating across multiple EU member states must ensure that their AI systems comply with the harmonised regulatory framework. This will create a level playing field and facilitate the seamless operation of AI technologies across the EU.

Ethical AI development
The Act will encourage the development of ethical AI technologies that align with EU values, including the protection of fundamental rights and environmental sustainability. Businesses that prioritise ethical AI development can contribute to the broader societal goals of the EU and build a positive reputation.

Conclusion
The forthcoming publication of the EU AI Act in the Official Journal of the European Union will mark a significant milestone in the regulation of AI technologies. For businesses, including those in the wealth management industry, the Act will bring both opportunities and challenges. By ensuring compliance with the regulatory requirements, promoting transparency and accountability, fostering innovation, and prioritising ethical AI development, businesses can navigate the new regulatory landscape and leverage AI technologies to drive growth and competitiveness. The EU AI Act will set the stage for a trustworthy and sustainable AI ecosystem that benefits businesses, consumers, and society.