February 1, 2024
The Artificial Intelligence Act (the AI Act) has been in discussion for some time now across the European Union. The AI Act is intended to set out rules for providers and users of AI systems in the EU marketplace. The current draft of the AI Act takes a risk-based approach to the regulation of AI systems, some being considered more high-risk than others. It also covers the regulation of what is being referred to as general purpose AI systems.
There is no known date for the AI Act becoming law yet as negotiations have been ongoing for some time, but the Act is expected to become law in the EU early this year. It is worth noting that the latest draft of the provisional agreement provides that the AI Act should apply 24 months after its entry into force, with some exceptions for specific provisions.
When it comes into force, the Act will apply to the following providers placing on the market or putting into service AI systems in the Union, irrespective of whether those providers are physically present within the Union or a third country; users of AI systems who are physically present or established within the Union; and providers and users of AI systems who are physically present or established in a third country, where the output produced by the system is used in the Union.
So, when the AI Act does become law, it will not directly impact UK businesses insofar as their operations in the UK are concerned. However, UK businesses will need to be prepared to comply with it if it does become law and they are placing AI systems on the market in the EU. The AI Act will place many obligations on providers of AI systems, particularly if those providers are putting “high-risk” systems into the market.
In contrast to developments in Europe, the UK has not been as forthcoming on developing uniform, AI-specific legislation, and to date has appeared to favour a regulatory guidance approach. To support the government's AI sector-led approach, there is now a recognisable framework of institutions and bodies tasked with overseeing the UK’s regulatory response to AI. It remains to be seen if the UK will publish draft rules in due course, above and beyond the AI white paper published on 29 March by the Department for Science, Innovation and Technology. The white paper provides a guide the UK's approach to regulating AI.
If the AI Act comes into force, then there will be some practices which are banned outright because they are deemed to be incompatible with the fundamental values and rights of the EU (respect for human dignity, freedom, equality, democracy and the rule of law, the right to non-discrimination, data protection and privacy and the rights of the child).
The AI Act has set out a multi-tiered approach to administrative fines, which are potentially significant. The highest tier of fines is reserved for non-compliance with the rules on generally prohibited AI practices, with the maximum fine being the higher of €35 million, and for companies 7% of total worldwide annual turnover for the preceding financial year. If you are a business that is using and developing AI systems and is already operating in or considering operating in the European market, then you will need to keep a watchful eye on the developments in Europe in respect of this potential new law. It will place many obligations on those business using and developing AI systems and the focus of any business will need to be on compliance to avoid fines. Businesses will also need to consider the impact this may have on its terms and conditions with customers as well as suppliers. Compliance will inevitably involve input from a business as whole – from tech, commercial and legal as a minimum so early preparation will be needed to make sure compliance is in place.
If you would like to discuss the impact of the AI Act and whether or not your UK business may be affected - we can help navigate this process for you. You can get in touch with the team here.