Passage Of The E.U. AI Act Means Boards Must Respond To AI Regulation

If they haven’t already, corporate boards will need to take a closer look at how their companies are using artificial intelligence now that the world’s first significant attempt to regulate the revolutionary technology was passed by the European Union this week. Although there is limited legislation regulating artificial intelligence in the United States, this move by the EU will likely jump-start efforts to regulate the technology—making it important for boards to be more mindful about how they are using AI now and how they might use it in the future.

The EU AI Act has set the first standard for AI use. The legislation bans some uses of the technology and categorizes other uses as high, medium and low risk. According to a report from CNN, the legislation bans the use of AI:

• in biometric tools that can be used to guess a person’s race, sexual orientation or political affiliation;

• in use in social scoring systems;

• in automated profiling systems intended to predict the likelihood a person might commit future crimes; and

• as a means to interpret the emotions of people in schools and workplaces.

The use of AI in education, hiring and access to government services have been categorized as “high-risk” and are expected to receive higher scrutiny from regulators. Violations of the Act could result in penalties of $38 million or 7 percent of a company’s global revenue. The 27-nation EU’s law is expected to come into full effect over the next two years.

Corporate board members on companies that are developing significant business initiatives that will use artificial intelligence may want to consider:

Regulation of AI will continue to evolve, forcing companies to anticipate curbs on their use of the technology. As companies continue to find new and innovative uses for artificial intelligence, there will be continuous efforts to regulate its use to prevent abuses of the technology. Governance best practices require boards to consider worst-case scenarios regarding company business plans, so directors might have to consider what would be done if there was a ban on how their company plans to use AI. What are alternative uses for the technology that can boost the company’s bottom line? How flexible can we be in our use of AI? Should the company engage regulators and become a vocal advocate for some uses of the technology?  Variations of these questions may need to be asked as AI regulation continues to evolve.

Is the company currently AI-compliant in the 27 nations that make up the European Union? Most companies are attempting to use AI to improve productivity and efficiency. Conducting an audit to determine exactly how the company is using AI and whether they are not in violation of this initial EU AI Act is essential, especially if the company operates in the European Union. Just like with any new legislation, boards must make sure the company is currently in compliance and has procedures in place to prevent future violations. The penalties for non-compliance are significant.

Has the board and management convened a committee to evaluate what AI regulation in the United States might look like? Now that the European Union has set the standard for regulation, it is reasonable to expect many of those regulations will be adopted by the U.S. in some way. Corporate boards may want to designate key executives to stay apprised of efforts to regulate AI in the U.S. so that the company can make the proper adjustments to it business operations.  

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