Artificial intelligence (AI) has become pervasive in today’s technologically advanced world, finding applications in various areas from smartphones to autonomous vehicles. AI tools offer automation and efficiency, improving workplace processes and decision-making. The potential of AI seems limitless, but concerns about its risks persist, including issues of discrimination and bias when things go wrong.
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In light of these concerns, there is a growing call for AI regulation, particularly in the fintech sector, which is projected to reach a market value of $46.8 billion by 2030. However, regulating a technology with global reach poses a significant challenge, as each country or region has its own set of rules to adhere to.
The AI Act
Leading the way in AI regulation is the European Union (EU), which recently approved the AI Act through the European Parliament. This landmark legislation, the first of its kind introduced by a major regulator, focuses on strengthening regulations around data quality, transparency, human oversight, and accountability.
The AI Act also tackles ethical questions and implementation challenges in various sectors, including healthcare, education, finance, and energy. It introduces a simple classification system that assesses the level of risk an AI technology may pose to an individual’s health, safety, or fundamental rights, ranking it as unacceptable, high, limited, or minimal.
These new rules will also apply to organisations outside the EU that provide AI systems to entities within the Union or use systems whose outputs are utilised within the EU. Violations of the regulations can result in fines ranging from €10 to 30 million or two to six percent of a firm’s global annual turnover, whichever is higher.
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Impact on fintech
The AI Act will primarily affect how fintech firms use, provide, import, or distribute software for biometric identification, human capital management, or credit assessment of individuals. It will prohibit software that exploits subliminal techniques or vulnerabilities related to age or disability and require software providers and users to maintain transparency.
However, there is a concern that these new regulations may drive many startups away from the EU, redirecting them to countries like the United States. In fact, 50% of AI startups have expressed that the legislation will impede innovation in Europe, and 16% are even contemplating halting their AI development or relocating outside the EU.
Compliance with the new legislation presents a significant challenge, particularly in determining which software qualifies as an AI system and which entities within a group are subject to these obligations, especially for multinational companies operating in multiple countries. Additionally, global firms will also need to navigate country-specific regulations.
Similar moves to introduce new AI regulations are underway in other parts of the world. In September 2021, Brazil’s Congress passed a bill that establishes a legal framework for AI, pending Senate approval. The UK Government has also initiated a consultation to establish a regulatory regime for the technology.
With the anticipated adoption of the AI Act, it is only a matter of time before widespread global AI regulation is introduced. Consequently, companies must familiarise themselves with the latest rules and ensure compliance with them.
Elliott Hoffman, Co-founder of AI Tool Tracker
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