The European Union (EU) Artificial Intelligence Act comes into force on 1 August. It will help protect the EU’s pillars, but it will also increase compliance costs for foreign companies doing business with the EU.
Chinese companies in particular expect to have to spend more time and money to comply with the AI law.
Since OpenAI introduced its handy AI tool ChatGPT in 2022, innovation in AI has outpaced regulation, prompting many countries and trading blocs to rush to develop legislation to govern how and where AI can be deployed.
Protection of democracy
The AI Act seeks to protect democracy, fundamental rights, environmental sustainability and the rule of law from “high-risk” AI. However, Partick Tu, co-founder and Chief Executive of Hong Kong-based Dayta AI, said he expects costs for the company to increase by 20%-40% (via SCMP).
The law aims to regulate AI in 12 main titles covering prohibited practices, high-risk systems and transparency obligations for governance, post-market monitoring, information sharing and market surveillance. However, the law does not regulate AI systems and models used in scientific research and development, so as not to hamper their disruptive impact on this sector.
Companies that fail to comply with the law risk fines of tens of millions of euros. Administrative fines can be as high as €35 million (US$38 million) or up to 7% of the company’s global annual turnover in the preceding year, whichever is higher.
Emma Wright, partner at law firm Harbottle and Lewis, said of the introduction of the law: “The EU AI Act is the first significant attempt to regulate AI in the world. It remains to be seen whether the costs of compliance will stifle innovation or whether the AI governance model it establishes will be a flagship export for the EU.”
“Given the pace of change in technology – as evidenced by the launch of generative AI last year – a further complication could be that the EU AI Act quickly becomes outdated, especially given the timescales for implementation,” Wright concluded.