EU AI Act comes into effect. What will be its global impact?

The world’s first significant AI law, the EU’s AI Act (AIA), comes into force today after four years of deliberation.

The legislation, approved in March, not only influences businesses within the European Union but also has substantial ramifications for technology giants in the US and UK.

Similar to the GDPR, the AIA’s extraterritorial reach mandates compliance for any AI systems marketed or intended for use within the EU – no matter where it originates.

As companies worldwide come to terms with the new regulatory landscape, understanding the challenges and opportunities presented by the AIA will be crucial for future-proofing operations and maintaining competitive advantage.

What is the EU AI Act?

The EU AI Act is the first major legislation aimed at regulating AI technologies and ensuring their ethical and transparent use.

It classifies AI systems into different risk categories, imposing varying levels of requirements based on their potential impact on society — minimal/no risk, limited risk, high risk, and unacceptable.

Anything categorised as ‘high risk’ must undergo stringent conformity assessments to ensure it complies with safety and transparency guidelines.

Companies are obliged to conduct thorough audits, implement robust risk management frameworks, and ensure compliance with detailed documentation and reporting standards.

The nature and functionality of any AI system have to be clearly disclosed to users to enhance accountability.

Companies that fail to comply with the AIA can face fines of up to EUR€30 million or 7% of their global annual revenue.

Who does the AI Act apply to?

Global firms must decide whether to adopt AIA standards universally or develop region-specific AI systems. This decision involves assessing the feasibility of compliance, potential costs, and operational impacts.

If US-based technology companies target the EU market, they must align their AI systems with AIA requirements. This may involve significant investments in compliance measures and operational adjustments.

UK companies, too, must comply with the AIA when operating within EU markets. The UK’s regulatory approach may also evolve in response to the AIA, influencing domestic AI strategies.

Despite the compliance challenges, the AIA presents opportunities for businesses to enhance customer trust through ethical AI practices, says Nikolaz Foucaud, EMEA Managing Director for Coursera, one of the largest online learning platforms in the world.

“The EU AI Act coming into force signals a new era of proactivity when it comes to AI management and regulation and offers a first major opportunity for the world to adopt a codified, coherent approach to rapidly evolving AI technology. Transparent and responsible AI development can serve as a competitive differentiator.”

What does the EU AI Act mean for businesses?

Foucaud adds, “While the EU AI Act primarily affects 27 member states in the European Union, it will have ripple effects across the UK market, likely impacting Labour’s approach to AI policy.”

However, he stresses the importance of intelligently tackling governance and the fact that AI is only as good as the people using it.

As AI technology evolves, so must the skills and knowledge of those managing it. According to Foucaud, investing in AI education and training is crucial for effective compliance and innovation.

“Skills development needs to be prioritised if we are to ensure that we deploy AI regulation effectively; having a workforce capable of navigating and utilising the technology has never been more important,” he adds.

Steve Lester, Paragon’s CTO, believes that the EU AI Act will fundamentally reshape how businesses engage with the EU market, particularly for UK companies.

“Compliance with the Act’s requirements is not optional for businesses; it applies to any AI systems that affect EU citizens or markets,” he says. “The prohibitions on practices like biometric categorisation require a re-evaluation of existing AI strategies to align with ethical standards.”

He also believes that companies have a responsibility to conduct thorough audits of their AI systems, invest in staff training on AI ethics, and establish robust governance frameworks to improve customer trust.

“It’s all about maintaining trust with EU customers, showing them that responsible AI development can go hand in hand with risk management, compliance, and ethical AI practices,” he adds.

Are businesses ready to comply with the EU AI Act?

Ali Shah, managing director of Responsible AI at Accenture, says businesses must act now.

“Accenture’s research shows just 2% of companies have identified themselves as having fully operationalised responsible AI across their organisation, and only 31% expect to have done so in the next 18 months.”

Businesses must prioritise responsible AI by intentionally designing and deploying AI that prioritises safety, fairness, transparency, and privacy and by establishing the necessary governance processes to be ‘regulation-ready’.

“The transnational nature of organisations complicates matters, requiring alignment with other regulations like GDPR and the Digital Services Act — Those that remain unprepared have left themselves with a race against time to ensure compliance with the Act and must take swift action,” Shah adds.

Dr Ellison Anne Williams, founder and CEO of Enveil, says the US and EU have set the pace for other regions to follow, but more collaboration is needed.

“In time, I hope to see more global collaboration, new frameworks emerge, and greater support for Privacy-Enhancing Technologies that will further enable organisations to safely and securely leverage AI to enable transformative business benefits and innovation while safeguarding data privacy and security.”

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