Artificial Intelligence Act – Finally There!

Key Contacts: Hugo Grattirola – Partner  |   Eoghan Doyle – Partner

This article is also available in the French language. To read this article in French, please click here.

This is it!

Following extensive negotiations, the EU Parliament adopted the final text of the AI Act by way of final vote at its plenary sitting on 13 March 2024. With final procedural and linguistic checks currently being carried out, it is now only a matter of weeks before the Act is published in the Official Journal of the European Union.

Once in force, the AI Act is anticipated to be the world’s first comprehensive regulation of AI. While the AI Act will enter into force 20 days after its publication in the Official Journal, its implementation and enforcement will be subject to a phased approach up until end of 2030.

The AI Act seeks to lay out a normative framework so that risks associated with AI systems are managed and mitigated to build trust in such systems and protect the fundamental rights of EU citizens.

A number of things have changed in the text of the Act since our last article (see here). Below is a summary of the main points to note regarding the Act in its final version:

1. Definition of AI System

An “AI system” is now defined as “a machine-based system designed to operate with varying levels of autonomy and that may exhibit adaptiveness after deployment and that, for explicit or implicit objectives, infers, from the input it receives, how to generate outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environments.”

2. Classifying AI according to its risk

The Act retains its risk-based approach where:

a- AI systems presenting an unacceptable risk are prohibited (e.g. social scoring systems; systems deploying manipulative or deceptive techniques or exploiting vulnerabilities to distort an individual’s behaviour; systems that infer emotions in workplaces or educational institutions (except for medical or safety reasons); systems that create or expand facial recognition databases through untargeted scraping of images);

b- the bulk of the requirements under the Act applies to systems that are considered “high risk”, as set out below; and

c- limited, minimal or no risk AI systems (e.g. most video games; spam filters that are enabled by AI) are subject to limited obligations, essentially around transparency to ensure end users understand that they are interacting with an AI system (e.g. chatbots and deepfakes).

3. New criteria for high risk AI systems

A notable substantial change within the AI Act in its final version is surrounding the classification of AI systems as “high risk”.

To summarise, high risk AI systems are those:

a- used as a safety component or a product covered by EU laws listed in Annex II to the Act and required to undergo a third-party conformity assessment under those Annex II laws (e.g. medical devices; machinery; toys); or

b-those systems falling within the use cases set out in Annex III (e.g. certain uses of AI for remote biometric identification; in a country’s critical infrastructure (gas; electricity; water etc.) or in vehicles or medical devices).

An AI system will not be considered high risk if it does not pose a significant risk of harm to the health, safety or fundamental rights of natural persons, which includes by not materially influencing the outcome of decision making. This requires the fulfilment of one or more of the following criteria:

a- the AI system is intended to perform a narrow procedural task;
b- the AI system is intended to improve the result of a previously completed human activity;
c- the AI system is intended to detect decision-making patterns or deviations from prior decision-making patterns and is not meant to replace or influence the previously completed human assessment without proper human review; or
d- the AI system is intended to perform a preparatory task to an assessment relevant for the purpose of the use cases listed in Annex III.

Specifics to note:

• An AI system shall always be considered high risk if it performs profiling of individuals (e.g. assessing or predicting an employee’s work performance or a person’s personal preferences, location or movements).

• A provider of an AI system referred to in the Annex III list of high risk systems who considers that their system is not high risk will have to document their assessment before that system is placed on the market or put into service.

• The provider of a high risk AI system referred to Annex III (or, where applicable, their authorised representative) shall register themselves and their system on an EU-wide database, with the exception of high risk AI systems used in critical infrastructure (which will need to be registered at national level).

• The above registration requirement also applies where a provider of a high risk AI system has determined their system not to be high risk. A level of assessment and documenting of same will therefore be expected from providers of high risk systems.

4. General Purpose AI Models (GPAI models)

These are a new addition to the AI Act. A whole chapter is now dedicated to them which aims to capture foundational models and other technologies such as OpenAI’s Chat GPT and the likes.

A “general purpose AI model” means “an AI model, including when trained with a large amount of data using self-supervision at scale, that displays significant generality and is capable to competently perform a wide range of distinct tasks regardless of the way the model is placed on the market and that can be integrated into a variety of downstream systems or applications.” This does not cover AI models that are used before release on the market for research, development and prototyping activities.

A “general purpose AI system” is defined as “an AI system which is based on a general purpose AI model, that has the capability to serve a variety of purposes, both for direct use as well as for integration in other AI systems”.

All providers of GPAI models will have to comply with and adhere to copyright laws and put specific documentation in place, including technical documentation around training and testing process and evaluation results, as well as information documentation for the attention of other providers looking to integrate a GPAI model into their own AI system.

In addition to outlining the obligations that will apply to providers of GPAI models, this new chapter classifies GPAI models according to their systemic impact.

A GPAI model will be classified as presenting a systemic risk if it has high impact capabilities or is identified as such by the European Commission. A GPAI model will be presumed to have high impact capabilities if the total computational power used for its training, measured in floating point operations (FLOPs), is greater than 10^25. For now, this would capture the largest LLMs (Large Language Models).

Providers of systemic GPAI models will have to notify the Commission within 2 weeks. They will also need to perform model evaluations, adversarial testing, track, document and report serious incidents to the European AI Office and ensure adequate cybersecurity protection. The text allows for adherence by providers of GPAI models to codes of practice to demonstrate compliance with their obligations.

Providers of GPAI models released under a free and open-source license will be exempt from certain transparency-related requirements. This exception will not apply if the models present a systemic risk.

The European AI Office will be solely competent for the supervision and enforcement in respect of providers of GPAI models.

Providers of GPAI models will be subject to potential fines of up to 3% of the total annual turnover or EUR 15M, whichever is higher.

5. Timeline for compliance with the AI Act

The main deadline to note is 24 months after the AI Act enters into force, but there are some exceptions:

6 months after entry into force: The prohibitions on unacceptable risk AI practices will apply.

9 months after entry into force: Codes of practice for GPAI models must be finalised.

12 months after entry into force:

– The rules on GPAI models will apply. With one exception being that providers of GPAI models that have been placed on the market before 30 Jan 2024 shall take the necessary steps to come into compliance by 24 months after entry into force;
– Member States shall appoint their respective competent authorities; and
– The EU Commission shall carry out an annual review and assess the need for amendments to the list of prohibited and high risk AI practices.

24 months after entry into force:

– The obligations on high risk AI systems listed in Annex III will apply;
– Member States shall have implemented rules on penalties, including administrative fines; and
– The EU Commission shall carry out an annual review and assess the need for amendments to the list of high risk AI practices.

36 months after entry into force:

– The obligations on high risk AI systems used as a safety component or a product covered by EU laws listed in Annex II to the Act and required to undergo a third-party conformity assessment under those Annex II laws will apply; and
– High-risk AI systems that were already on the market or in use before the entering into force of the AI Act have to comply only if they undergo significant changes in their designs. However, those used by public authorities will have 4 years to comply.

6. Penalties

The penalties under the AI Act will essentially apply to three distinct parties:
a- operators of AI systems;
b- providers of GPAI models; and
c- Union institutions, agencies, and bodies.

In respect of fines, the Act follows a three-tier approach:

a. A fine of up to €35,000,000 or, if the offender is a company, up to 7% of its total worldwide annual turnover for the preceding financial year, whichever is higher, for using prohibited/unacceptable risk systems (or placing such systems on the market);

b. A fine of up to €15,000,000 or up to 3% of the offender’s total worldwide annual turnover, for failure to comply with the requirements of high-risk systems. This tier also applies to providers of GPAI models, in respect of which the Commission is the authority competent to impose a fine; and

c. A fine of up to €7,500,000 or up to 1% of the offender’s total worldwide annual turnover for supplying incorrect, incomplete of misleading information in response to a request from notified bodies/national competent authorities.

The Act also emphasizes the proportionality approach for SMEs and start-ups, in respect of which each fine shall be up to the lower of the percentages or amount in each of the above tiers.

In respect of Union institutions, agencies, and bodies, the European Data Protection Supervisor can impose administrative fines of up to €1,500,000.

7. What to do now?

As a first step, any organisation using a form of AI solution should consider whether this solution falls within the category of prohibited / unacceptable risk AI systems, especially given the prohibition will be the first provisions of the Act to become applicable. Prohibited / unacceptable risk AI systems include for instance biometric categorisation, behavioural manipulation, predictive policing and emotion recognition.

Organisation should also start identifying/inventorying the AI systems they rely on and the risks such systems represent (low, medium, high) as well as the role they will play under the Act, in order familiarise themselves with the regime and requirements applicable under the Act. The idea being to put some form of an AI governance framework in place.

Proper staff training, governance and oversight should also be put in place for monitoring specific matters relating to AI systems such as privacy, data quality/integrity, transparency, explainability and cybersecurity.

From a data protection perspective, a Data Protection Impact Assessment will most likely be required in respect of AI systems already being used and/or the introduction of any such systems within the organisation.

Finally, the extent of the requirements under the Act means that significant compliance costs will likely have to be incurred and organisations should consider what budget will need to be allocated for compliance purposes.

There is no doubt this piece of legislation will bring about its own challenges and opportunities and require organisations to adapt and thread carefully when using AI.

For further information in relation to this article please contact Hugo Grattirola and Eoghan Doyle .

 

This article was prepared with the assistance of Zoe Dunne and Kellie McDermott.

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