PrepAIr

The impact of the new AI legislation (AI Act) on the financial services sector

The recent agreement between the European Parliament and the Council on the amended proposal for an AI regulation by the European Commission marks a significant step in the regulation of artificial intelligence (AI) within the European Union. This development, aimed at providing a uniform legal framework for the development and use of AI, has significant implications for the financial services sector.

The recent agreement between the European Parliament and the Council on the amended proposal for an AI regulation by the European Commission marks a significant step in the regulation of artificial intelligence (AI) within the European Union. This development, aimed at providing a uniform legal framework for the development and use of AI, has significant implications for the financial services sector.

The AI Act classifies AI systems into four risk levels: Unacceptable risk, high risk, limited risk, and minimal risk:

  1. Unacceptable risk: This category includes AI systems considered a danger to fundamental rights or democracy. Examples are systems for social scoring and AI that promotes behavioral manipulation of vulnerable groups. These systems are prohibited under the new legislation.
  2. High risk: AI systems in this category have significant potential to harm health, safety, or fundamental rights. They are subject to strict obligations, such as a mandatory assessment of the impact on fundamental rights. Examples include AI applications in medical devices and systems used in critical infrastructure.
  3. Limited risk: This category concerns AI systems that pose some risks, but not at the level of high risk. Specific transparency obligations apply to these systems. An example could be an interactive AI system that must inform users they are communicating with AI, e.g. chatbots.
  4. Minimal risk: Most AI systems fall under this category, where the risk of harm is considered low. The regulatory requirements for these systems are limited or non-existent. This could apply, for example, to AI applications in video games or spam filters.

This classification is designed to balance promoting innovation and protecting citizens from potential harm caused by AI technologies.

Main objectives of the regulation

The AI Act aims to promote the introduction of human-centric and reliable AI while simultaneously ensuring a high level of protection against the harmful effects of AI systems in terms of health, safety, fundamental rights, democracy, the rule of law, and the environment. Specific focal points within the regulation include the protection of fundamental rights and ensuring the transparency and traceability of AI systems.

Implications for the financial services sector:

  • Increased regulation and oversight: Financial institutions will face stricter rules for ‘high-risk’ AI systems. These systems, which can have a significant impact on people’s chances in the labor market or financial services, will be subject to thorough evaluations and approvals before they can be brought to market.
  • Transparency and accountability: The regulation requires financial service providers to be transparent about the use of AI in their processes and products. This includes informing customers when AI is deployed and offering opportunities for customers to object to AI decisions that disadvantage them.
  • Innovation versus safety: The regulation encourages innovation but simultaneously emphasizes the safety and reliability of AI systems. This means that financial institutions must invest in AI technologies that are not only advanced but also meet strict safety and ethical standards.
  • International competition: The new rules will also apply to non-European providers of AI products and services. This creates a level playing field and ensures that all players in the financial sector adhere to the same high standards, regardless of their geographical location.
  • Data privacy and protection: In line with the general focus on fundamental rights and privacy, financial service providers will need to take extra measures to protect the privacy and data of their clients when using AI systems.

Checklist

Our team at PrepAIr has developed the following checklist to assess your organization’s preparedness for adhering to the requirements of the AI Act:

  1. Legal and regulatory understanding

Thoroughly understand all aspects of the AI Act and identify its implications for your specific financial services.

  1. Risk identification and assessment

Identify and evaluate risks associated with AI use, especially focusing on areas classified as high-risk by the AI Act.

  1. Data management and compliance

Review and align data handling practices with AI Act requirements, focusing on data sourcing, processing, storage, and security.

  1. AI system evaluation and modification

Audit existing AI systems for compliance with the AI Act, making necessary modifications to meet standards.

  1. Ethical AI integration

Implement and monitor practices to ensure AI systems operate ethically, focusing on bias prevention and fairness.

  1. Transparency and explainability measures

Develop methods to ensure AI decision-making processes are transparent and understandable to users and regulators.

  1. Human oversight and intervention protocols

Establish procedures for human oversight in AI systems, especially in decision-making processes.

  1. Internal policies and training

Formulate internal policies for AI governance and conduct training programs for staff regarding AI Act compliance and ethical AI practices.

  1. Stakeholder communication and reporting

Maintain transparent communication with stakeholders (regulators, customers, etc.) and establish reporting mechanisms for AI-related issues.

  1. Review and adaptation strategy

Regularly review AI systems and policies for continued compliance and adapt to any changes in the AI Act and related regulations.

Conclusion

The AI Act provides a framework that not only stimulates innovation but also ensures the safety, transparency, and ethical application of AI in the financial services sector. While this offers new opportunities for financial service providers, it also brings challenges in compliance and adaptation to this new legislation. Organizations in this sector need to understand these changes and prepare for them to remain competitive and compliant in the changing technological landscape.

Sources:

EU-akkoord over sterke, goedwerkende markt voor kunstmatige intelligentie | Nieuwsbericht | Rijksoverheid.nl

VERSLAG over het voorstel voor een verordening van het Europees Parlement en de Raad tot vaststelling van geharmoniseerde regels betreffende artificiële intelligentie (wet op de artificiële intelligentie) en tot wijziging van bepaalde wetgevingshandelingen van de Unie | A9-0188/2023 | Europees parlement (europa.eu)

AI-verordening: eerste regels voor artificiële intelligentie | Nieuws | Europees Parlement (europa.eu)

Artificial Intelligence Act: deal on comprehensive rules for trustworthy AI | News | European Parliament (europa.eu)

European Union Artificial Intelligence Act Regulatory Scheme (natlawreview.com)

Want to know more about Turner PrepAIr?

Do you want to learn more about what Turner Strategy = Execution can do for your organization? Fill out the form, and we will contact you as soon as possible.

Do you want to learn more about what Turner Strategy = Execution can do for your organization? Fill out the form, and we will contact you as soon as possible.

PrepAIr
Alexander Bruinsma

Transparency in AI and preparing for unknown challenges

In the current digital era, where artificial intelligence (AI) plays an increasingly important role in business processes, the demand for transparency from organizations in this area has greatly increased. The key question is: how transparent should organizations be about their AI usage and policies? Moreover, how can companies prepare for the unknown expectations and challenges that AI brings?

Read More »
PrepAIr
Alexander Bruinsma

Beyond the Hype: The Importance of a Balanced Approach to AI

Artificial Intelligence (AI) is experiencing a hype, everyone is talking about it. But the application and use of AI are polarizing: the potential benefits and promises are huge, while doomsayers literally predict the end of our civilization. Legislators are taking action and preparing strict laws. What should organizational leaders do?

Read More »
PrepAIr
Alexander Bruinsma

The battle for AI talent – A race in the digital age

In the rapidly evolving world of AI, it is essential for organizations to distinguish themselves in the battle for top AI talent. This requires a dynamic approach: shaping an inspiring work culture, emphasizing unique development opportunities, and adapting to the latest trends and regulations.

Read More »

Want to know more about Turner?

For the fourth consecutive year, Turner Strategy Execution has been recognized by clients as the best strategic consulting firm in the Netherlands. Over 4,000 executives and professionals participated in the MT1000 survey, where Turner received the highest ratings for strategy advice, customer focus, excellent execution, and product leadership.

Please read more about the results achieved by other clients with assistance of Turner Strategy Execution. Want to learn more? Contact us for further information.

This website uses cookies to ensure you get the best experience on our website. By continuing to browse on this website, you accept the use of cookies for the above purposes.​