The EU AI Act Demystified from a RAIOps perspective for Financial Institutions:
The EU AI Act: A New Era for AI Governance
On August 1, 2024, the EU AI Act officially came into force, marking a pivotal step toward regulating AI technologies to protect consumers and ensure their safe and secure use. The new regulations apply to any company trading within the EU, significantly affecting industries like finance, where AI is critical in decision-making processes.
With the deadline fast approaching, financial institutions must prepare to comply with transparency and confidentiality requirements, particularly concerning general-purpose AI models.
Key Timeline:
August 1, 2024: The EU AI Act officially takes effect.
February 2, 2025: AI systems that use prohibited techniques, like facial recognition or manipulative AI, must be phased out.
August 2, 2025: Financial institutions must comply with the Act’s full transparency and confidentiality requirements.
The Significance of GRC (Governance, Risk, and Compliance):
To comply with the EU AI Act, financial institutions will need to implement a robust Governance, Risk, and Compliance (GRC) framework. This involves not only assessing the risks of using AI but also ensuring transparency in decision-making processes. A key challenge lies in balancing innovation with risk management, especially as the penalties for non-compliance are steep, reaching up to €30 million, or 6% of global turnover.
Four Key Aspects of the EU AI Act:
- Assessing Risk Levels: AI systems are categorized into four risk levels under the Act: unacceptable, high, limited, and minimal risk. High-risk AI, such as those used in financial services for credit scoring or fraud detection, requires special attention. These systems must meet stringent transparency and compliance standards by August 2025.
Action: Start by identifying where your AI systems fall within the Act’s framework and implement the necessary compliance measures.
- Accountability from Day One: The EU AI Act places significant emphasis on governance. AI systems must be designed with risk management, human oversight, and compliance in mind, right from the start.
Action: Build or enhance your AI governance framework. Appoint AI compliance officers to ensure adherence to the Act’s standards throughout the lifecycle of your AI systems.
- Transparency and Explainability: High-risk AI systems must be fully transparent in their decision-making processes. Financial institutions will need to ensure that their AI tools provide clear explanations for their decisions, especially when handling personal or sensitive data.
Action: Implement systems that enable full transparency and ensure clear communication with customers when AI is involved in decision-making processes.
- Non-Compliance Can Be Costly: The penalties for not complying with the EU AI Act are significant. With fines reaching up to €30 million, or 6% of global annual turnover, businesses can’t afford to overlook their GRC obligations.
Action: Invest in GRC tools that offer real-time AI monitoring and provide a clear audit trail of your AI systems to regulators.
In addition the AI HLEG developed seven non-binding ethical principles for AI which are intended to help ensure that AI is trustworthy and ethically sound aka Responsible AI .
The seven principles include human agency and oversight; technical robustness and safety; privacy and data governance; transparency; diversity, non-discrimination and fairness; societal and environmental well-being and accountability.
Conclusion:
The EU AI Act is set to transform how businesses, particularly financial institutions, govern and manage AI systems. With less than a year to ensure compliance, now is the time to act. Building a strong GRC framework and leveraging AI solutions that prioritise transparency , fairness and accountability are essential to navigating this new regulatory landscape successfully.
Some of the biggest challenges in aligning AI with regulatory standards include accuracy, robustness, and security of AI solutions, technical documentation, data privacy and security of the context used in the AI application, human oversight to ensure that there is human in the loop to make the right decision, audit trails and reports which can be given to the regulators for auditing.
Inspeq provides all these capabilities in its platform ensuring that deployers of AI solutions like agents or Co Pilots have all the data points needed so their AI solutions are compliant with the rules of the EU AI Act.