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Leading the Way in AI Regulation. How the EU AI Act’s Role is Establishing Global AI Legal Standards and Its Far-Reaching Implications. A special focus on the beneficial impact on SME impact.

by Michela de Julio
Legal Consultant and Official translator,
expert in recognition of academic and professional qualifications

As an expert in legal matters related to Artificial Intelligence, I believe it’s crucial to explore the groundbreaking EU AI Act. The EU’s pioneering draft AI Act is the world’s first comprehensive legal framework for AI, marking a historic moment in regulatory approaches to emerging technologies. This Act stands as a comprehensive legal framework, significantly transforming the worldwide approach to AI regulation. It effectively translates European principles for the digital era and establishes a global benchmark in the pursuit of AI governance by aiming to balance the promotion of innovation with the protection of fundamental rights and public safety.


Following intense three-day talks, the Council presidency in conjunction with the European Parliament’s negotiators unveiled a pivotal advancement in the domain of Artificial Intelligence governance. This breakthrough, marked by the agreement on the AI Act, represents a significant milestone for the European Union in establishing a comprehensive legal framework to govern AI applications.

In the international arena of AI governance, the EU is taking a leading role with its AI Act, outpacing other key global players such as the US, UK, and China, who are still in the nascent stages of formulating AI regulatory frameworks. This initiative is part of the EU’s broader digital strategy, which actively seeks to create a regulated AI ecosystem conducive to both innovation and ethical use. The overarching objective of this strategy is to leverage AI’s transformative power across various sectors. This encompasses a range of improvements, such as elevating the quality of patient care in healthcare, advancing safety and eco-efficiency in transportation systems, increasing productivity in manufacturing, and fostering cost-effectiveness and ecological sustainability in the energy industry. Additionally, it involves providing substantial support for innovation to Small and Medium-sized Enterprises (SMEs) and professionals in various fields.

The recent provisional agreement on the AI Act sets a timeline for its implementation, mandating that it should come into effect two years following its official enactment. This timeline provides a crucial phase for adaptation and preparedness, facilitating a seamless integration into this novel regulatory framework. Nonetheless, specific provisions of the Act might be activated on varied or earlier schedules, indicative of the EU policymakers’ detailed and considerate strategy in tackling the multifaceted and intricate aspects of AI technologies and their myriad uses.

The EU AI Act is a consequence of the European Commission’s groundbreaking proposal, revealed in April 2021, for the EU’s inaugural regulatory framework on AI. This framework is designed to scrutinise and categorise AI systems based on the risks they pose to consumers. Depending on the level of risk assessed, there will be corresponding regulatory measures. Upon implementation, these regulations are set to become the first of their kind globally, establishing a global benchmark for AI governance.

The European Parliament’s primary emphasis in AI legislation revolves around guaranteeing the safety, transparency, accountability, equity, and environmental sustainability of AI systems deployed within the EU. This approach proactively confronts and rectifies unacceptable AI practices while championing their ethical implementation in diverse industries. At the heart of the Parliament’s strategy is the belief that human oversight should be the cornerstone in both deploying and operating AI systems, eschewing complete automation. This philosophy is adopted to minimise potential negative impacts stemming from automated decision-making processes, ensuring a balanced and human-centric approach to AI technology.


Ensuring a comprehensive safe and ethical approach on AI

The primary objective of the AI Act is to ascertain that AI technologies conform to established safety standards, safeguard fundamental rights, and maintain democratic principles, while simultaneously fostering an environment conducive to business innovation and expansion. This legislation systematically specifies distinct responsibilities for AI systems, classifying them according to their associated risk levels and potential impacts.

Such a detailed framework is instrumental in nurturing a responsible AI ecosystem. It not only promotes technological advancement and innovation but also safeguards against potential ethical pitfalls and societal harms. The Act envisages a future where AI is not just a tool for economic growth, but also a means to enhance societal well-being, adhering to robust ethical standards.

The most ambitious goal of the AI Act is to craft it in a manner that allows for adaptability to the constantly evolving landscape of AI technology. It incorporates mechanisms for regular reviews and updates, ensuring that the regulatory framework remains relevant and effective in the face of rapid technological advancements. This dynamic approach reflects the European Union’s commitment to being at the forefront of managing AI’s transformative impact while balancing the interests of citizens, businesses, and the broader society.

In essence, the AI Act stands as a testament to Europe’s vision of harmonising technological innovation with human-centric values, setting a precedent for worldwide AI governance.


Navigating key innovations and Safeguards

The Act strategically targets identifiable risks, crafting a framework that promotes responsible AI innovation while safeguarding essential rights. General-purpose AI systems are required to maintain transparency, including providing technical documentation, adhering to EU copyright laws, and offering detailed training content summaries. Systems with higher impact and systemic risk are subject to more rigorous evaluations and additional requirements. A key advancement in rights protection is the mandate for deployers of high-risk AI systems to perform a fundamental rights impact assessment before implementing any AI system.

The compromise agreement introduces a comprehensive layer of protection, incorporating a classification for high-risk AI, ensuring that AI systems with minimal potential for serious fundamental rights violations or other significant risks are not overly regulated. AI systems with limited risk face minimal transparency obligations, such as disclosing AI-generated content, enabling users to make more informed decisions about their usage.

A broad spectrum of high-risk AI systems will be permitted in the EU market, contingent upon meeting a set of criteria and obligations. These requirements have been refined and moderated by co-legislators to be more technically achievable and less cumbersome, particularly concerning data quality and the technical documentation needed by SMEs to demonstrate compliance with the standards.

The provisional agreement stipulates a fundamental rights impact assessment prior to the market launch of any high-risk AI system by its deployers. It also enhances transparency regarding the utilisation of high-risk AI systems. Notably, some aspects of the Commission’s proposal have been modified, indicating that certain high-risk AI system users who are public entities, must register in the EU database for high-risk AI systems. Additionally, new provisions underscore the obligation for users of emotion recognition systems to inform individuals when they are subjected to such technology.


Enhancing Oversight of General-Purpose AI Models

The AI Office, bolstered by an independent scientific panel, is tasked with regulating general-purpose AI models, striving to set a worldwide standard in AI governance. Recent amendments have been introduced to address scenarios where AI systems, designed for a multitude of applications (general-purpose AI), are later incorporated into other high-risk systems. This includes a special focus on the unique instances of general-purpose AI (GPAI) systems.

Specific regulations have also been established for foundational models. These are extensive systems equipped to adeptly execute a diverse array of tasks, ranging from generating video, text, and images to engaging in natural language conversations, computing, or creating computer code. According to the provisional agreement, these foundational models must adhere to distinct transparency requirements before entering the market. A more stringent framework has been adopted for ‘high impact’ foundational models. These models, characterised by their training with vast datasets, advanced complexity, and superior capabilities and performance, have the potential to propagate systemic risks across the value chain. The new regulations aim to pre-emptively mitigate these risks, ensuring a responsible and secure integration of these advanced AI systems into the market and society.


Prohibiting Harmful and Invasive AI Practices and Applications

The Act outlaws certain AI practices considered harmful, like manipulative social scoring and the use of emotion recognition technologies in workplaces, advocating for an ethical AI approach. It explicitly prohibits AI applications that threaten citizens’ rights and democracy, including sensitive characteristic-based biometric categorisation, indiscriminate facial image scraping, emotion recognition in workplaces and educational settings, social scoring, human behaviour manipulating AI systems, and AI designed to exploit vulnerabilities. These measures are integral to preserving the ethical and responsible use of AI in society.

The Act incorporates modifications to the Commission’s proposal, specifically addressing the use of AI by law enforcement authorities. While acknowledging the essential role AI plays in law enforcement, the changes aim to balance this with the need to protect fundamental rights and maintain operational data confidentiality. For instance, a new emergency procedure permits law enforcement agencies to deploy a high-risk AI tool that hasn’t completed the conformity assessment in urgent situations. Additionally, a mechanism has been established to protect fundamental rights from potential AI misuses.

Furthermore, the provisional agreement specifies conditions for the use of real-time remote biometric identification systems in public spaces, limiting their application to law enforcement purposes. These are restricted to certain necessary objectives, such as locating crime victims, preventing imminent threats like terrorist attacks, or finding suspects of severe crimes. This compromise introduces additional safeguards, confining these exceptions to specific, high-stakes situations. These regulations include the requirement for prior judicial authorisation, ensuring that the use of such systems is subject to careful legal scrutiny. Furthermore, the Act limits the scope of their application to specific, serious crimes such as terrorism, trafficking, and sexual exploitation. These measures are designed to strike a balance between law enforcement needs and the protection of individual rights and privacy, aligning with the Act’s broader objectives of responsible and ethical AI use in the EU.


Establishing Dual-Level Oversight for AI Regulation

The AI Act introduces a dual-level oversight system: National market surveillance authorities will monitor AI regulations within their respective countries, while the European Commission will establish an AI Office for unified coordination and enforcement across the EU. This structure ensures both local and EU-wide regulation of AI, with the AI Office playing a key role in overseeing advanced AI models and upholding standardised rules throughout member states. In this context, a lively debate is emerging concerning generative AI. Generative AI systems, including ChatGPT, have been a focal point of debates in the EU Parliament during discussions on the AI Act. These discussions revolve around the potential impact of such systems on various aspects. Concerns have been raised about their influence on job displacement, the need to safeguard privacy in AI-generated content and ensuring copyright protection. As a result, there has been a consensus to address these concerns by introducing transparency and documentation requirements for generative AI systems. Advanced models, particularly those with the potential for systemic impacts, face even closer scrutiny. These discussions reflect the EU’s commitment to responsible AI regulation.

Furthtermore, the AI Act introduces a comprehensive framework for high-risk AI systems, encompassing those that can potentially influence election outcomes and voter behavior. To uphold the highest standards of ethical AI use, these systems are required to undergo mandatory fundamental rights impact assessments. This rigorous assessment process ensures that potential risks are thoroughly evaluated, thereby safeguarding citizens’ rights and democratic processes. The Act also empowers individuals to voice their concerns by allowing them to file complaints and seek explanations regarding the operation and impact of high-risk AI systems. This approach underscores the Act’s commitment to transparency, accountability, and the protection of fundamental rights in the realm of advanced AI.


Fostering Innovation and Empowering SMEs in AI

The EU’s AI Act is designed to foster innovation and support small and medium-sized enterprises (SMEs) in the competitive field of AI. Acknowledging the challenges faced by SMEs due to the dominance of larger industry players, the Act introduces “Regulatory Sandboxes.” These are specialised environments overseen by national authorities, where SMEs can test and develop AI technologies with more flexible regulatory requirements. This initiative is crucial in levelling the playing field, as it allows SMEs to explore AI applications without being overwhelmed by the stringent regulatory demands that larger companies can more easily navigate.

In these sandboxes, SMEs are given the freedom to experiment and refine their AI solutions in real-world scenarios before their full market launch. This process ensures that the AI models are not only innovative but also robust, reliable, and prepared for commercial use. The Act, therefore, not only reduces the disproportionate advantage held by larger companies in terms of compliance and development resources but also enables SMEs to innovate at a sustainable pace and scale. This approach promises to cultivate a more diverse and competitive AI market.


Expanding Horizons for AI Professionals: Collaborating with SMEs for Niche Innovation

The AI Act also presents a unique opportunity for AI professionals to engage in new and diverse ways, opening doors for collaborative, consultative, and developmental roles with small and medium-sized enterprises. As these SMEs navigate the complexities of AI integration, they stand to gain immensely from the expertise of professionals in technology, regulatory comprehension, ethical practices, and strategic market positioning. This collaboration is pivotal in fostering a more inclusive and dynamic AI sector.

A key focus of this section of the Act is on encouraging specialisation and the pursuit of niche innovations. SMEs, with their agility and focused approach, often spearhead innovation in specialised areas or by applying technology in unique ways. The AI Act’s supportive measures are designed to embolden these enterprises to delve into AI applications that are uniquely tailored to meet specific industry needs or address societal challenges. These areas might not be the primary focus of larger corporations, thus providing a fertile ground for SMEs to innovate and excel.

By bolstering SMEs in the AI domain, the AI Act indirectly fuels economic growth and job creation. SMEs play a critical role in employment, often acting as significant contributors to the workforce. Supporting their advancement in a high-potential sector like AI not only empowers these enterprises but also generates positive effects on the broader economy. This synergy between AI professionals and SMEs under the framework of the AI Act holds the promise of driving forward a technologically advanced, economically robust, and socially inclusive future.


Penalties for Non-Compliance

The AI Act enforces compliance through a tiered penalty system, with fines varying based on the severity of the infringement and the size of the company. Major violations can attract fines up to 35 million euros or 7% of global annual turnover, targeting serious breaches that threaten public safety or fundamental rights. For moderate violations, fines can reach 7.5 million euros or 1.5% of turnover. The penalty scale considers the company size, ensuring fairness across different business scales. This structure not only deters non-compliance but also promotes proactive adherence to the Act’s standards, encouraging companies to align their AI practices with ethical and legal norms. The aim is to foster responsible AI use, balancing enforcement with incentives for compliance.

By establishing this tiered penalty system, the AI Act aims to safeguard against the misuse or irresponsible deployment of AI technologies, ensuring that companies operate with due diligence and respect for the regulations set forth to protect public interest and fundamental rights.



As we look towards the future under the AI Act, the next steps are critical for its successful implementation and the realisation of its objectives. This involves establishing detailed regulatory frameworks and enforcement mechanisms to ensure compliance. Key to this process is educating companies and stakeholders about the new requirements and making sure the support infrastructure for compliance is both robust and accessible.

Ongoing dialogue among stakeholders, including governments, businesses, and civil society, will be essential in addressing emerging challenges and adapting the Act’s framework to keep pace with the rapidly evolving AI landscape. The effectiveness of the AI Act will largely depend on this collaborative approach and a shared commitment to responsible AI development.