AI Law in EU: Its impact

Artificial Intelligence (AI) has rapidly transformed the world. Governments globally are striving to harness AI’s vast potential for daily applications. However, with great power comes great responsibility. Technological advancements require robust regulation, especially those that can significantly alter lives. They must be grounded in solid infrastructure and regulatory frameworks before widespread implementation.

Europe provides a notable example. In March, the European Parliament passed the landmark AI Act, creating the world’s first comprehensive framework for AI regulation. This legislation adopts a risk-based approach, categorizing AI systems into four risk levels: unacceptable, high, medium, and low. High-risk systems will face stricter requirements before entering the EU market. The Act’s provisions will be gradually implemented over the next few years, with complete implementation expected by 2027.

The AI Act sets a global standard for AI governance, supported by national agencies and an AI office within the European Commission, fully backed by the public sector and government. The legislation targets unethical, manipulative, or deceptive AI practices, including exploiting vulnerabilities, biometric categorization, social scoring, and specific uses of real-time biometric identification in public spaces. It also bans AI systems used for risk assessments in criminal offenses and those creating extensive facial recognition databases through untargeted image scraping like from CCTV and the Internet.

The AI Act is fundamental to transparency and accountability. It requires companies to disclose how their AI systems operate and ensures consumers can seek collective compensation if harmed by an AI system. Non-compliant companies could face fines of up to €35 million (approximately $38.2 million). This consumer-centric legislation safeguards individuals, their data, and their rights while promoting ethical AI development within the EU.

The implications of the EU AI Law extend beyond Europe, particularly affecting the ASEAN region. ASEAN can find common ground with the EU despite differing regulatory landscapes, technological capabilities, and government priorities. The EU AI Law sets a high standard for regulatory influence that ASEAN countries can emulate as they develop their AI governance frameworks. ASEAN might adopt best practices from the EU, such as iterative risk assessments and proactive approaches for high-risk AI systems. Harmonized AI regulations across regions could promote ethical AI development and implementation.

ASEAN businesses, especially those operating in the EU, may face higher operational costs due to the need to comply with the EU AI Act’s regulations. This could increase financial investments in data management and AI system adjustments. Non-compliance could result in exclusion from the market.

Regulatory compliance is essential for ensuring safety and security against risks, threats, misuse, and abuse. However, there must be a balance. Overly stringent regulations could stifle AI growth, but if managed wisely, adherence to EU standards could drive ASEAN companies to develop more advanced, ethical, and secure AI technologies. This could enhance global competitiveness and foster higher motivation to succeed. A flexible regulatory framework promoting innovation and ethical standards could be the key.

ASEAN could adopt a sector-based regulatory approach, focusing initially on critical industries like finance, healthcare, and manufacturing. A gradual implementation approach could strengthen the foundation and introduce AI policies without overwhelming the region. Collaborative initiatives and public-private partnerships will support this transition and enhance digital infrastructure.

The EU AI Act allows ASEAN to enhance its AI governance frameworks by aligning with global standards and fostering advanced, ethical AI development. While it may pose initial challenges, it is expected to benefit the region’s financial landscape and economic growth ultimately. This act can serve as a benchmark for ASEAN.

Adapting EU-style regulations to local contexts will be crucial, necessitating careful tailoring to fit each country. Banks must ensure compliance by aligning their AI systems with the Act’s requirements. Proper execution can give banks an advantage in maintaining and expanding their presence in the European market.

Stringent regulations, while initially challenging, can also drive innovation. Local banks can pioneer advanced, secure, and ethical financial technologies by developing AI systems that comply with global standards. This alignment can enhance customer trust and satisfaction, bolstering banks’ reputations as responsible financial institutions.

Promoting financial inclusion is also vital, as ethical AI can ensure that AI-driven financial services are accessible and fair, particularly for underserved and unbanked populations in remote regions. Taking responsible, concrete steps can solidify ASEAN’s position as a forward-thinking and accountable player in the increasingly AI-driven global financial landscape.

To learn more about AI, join the FinTech Alliance PH Manila Tech Summit-themed “AI Unlocked: Shaping Our Digital Future” on Aug. 6-7, 2024, at the Marriott, Newport Resorts World. For more information, visit fintechalliance.ph.

Lito Villanueva is the Philippines’ leading thought leader in digital transformation and inclusive digital finance. As the executive vice president and chief innovation and inclusion officer of RCBC, he has led pioneering and award-winning digital initiatives. Lito is the founding chairman of Fintech Alliance.Ph, the industry association driving over 95 percent of the nation’s digital retail financial transactions, and the first global chairman of the South Africa-based Alliance of Digital Finance Associations. Recently honored on The Asian Banker (TAB) Global List of Leading Practitioners in Banking and Financial Technology, he continues to champion financial inclusion and fintech innovation across the Philippines. Beginning his career as an associate editor at the Economist Intelligence Unit (EIU), Lito’s academic credentials include graduate degrees in public administration and national security administration.