EU AI Act and its Impact on US Fiduciary Investment Advisers (US FIAs)

London intellectual property partner Huw Beverly-Smith and investment management counsel Rupert Barnes co-authored an article for the Investment Adviser Association providing an overview of the European Union (EU) AI Act and its potential impact on fiduciary investment advisers (FIAs) in the United States. 

The AI Act applies to providers and deployers in the AI supply chain both in and out of the EU, even if those outside have no physical presence in the EU. Simply developing AI-based financial tools used in the EU puts companies within the scope of the Act. The Act takes a tier-based approach to determine risk and regulations for the AI product, from unacceptable risk (AI systems deemed a clear threat to safety, such as social scoring or predictive policing) to minimal risk, which includes most AI systems and is left mostly unregulated by the Act. Further, the authors note that the Act includes significant penalties for non-compliance, potentially up to €15 million ($16.3 million) or 7% of total worldwide turnover in the preceding financial year (whichever is higher). 

Beverley-Smith and Barnes advise FIAs to implement best practices now in order to ensure compliance with the Act, including an assessment of current AI systems used and potentially redesigning those systems to mitigate legal risks.