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AI Regulations

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Assessing the impact on companies

Regulating fast-moving innovative technology is challenging. Recent developments in large language models (e.g. ChatGPT) have prompted an enhanced public interest in AI, including new debates about AI risks and the need for regulatory oversight. According to the WEF Global Risks Report 2024, respondents to its survey (from academia, business and government) saw misinformation and other adverse outcomes of AI technologies as the 5th and 6th most severe global risks in the long term. The challenge for regulators is to respond to these concerns with policies that strike a balance between intervention and innovation as well as building sufficient flexibility to capture rapidly changing AI applications.

The current and future regulations mainly address AI workings, but broader issues are in the spotlight, too. Rules on model testing, elimination of bias and traceability have been among the first measures adopted by policymakers as they aim to mitigate risks to stakeholders. However, we are now seeing more guidance on how AI can help address global challenges, including climate change, and how it can impact labour markets. We expect more clarity soon on synthetic content labelling and AI-linked intellectual property rights, but practices are likely to vary between markets.

Policymakers are adopting various approaches to AI regulation – a trend which we think will continue in the coming years. Markets seem to follow their individual agendas and sociopolitical contexts and use diverse policy instruments from legislation to soft law. Many adopt a vertical approach by implementing regulations on specific applications of AI (e.g. Hong Kong or mainland China), while others move towards a horizontal approach, with AI rules covering a broad range of issues from model testing to energy consumption (e.g. the EU).

Wide-ranging implications. As we expect some policymakers to move ahead with more prescriptive measures, compliance with upcoming regulations will require a major effort from AI tech companies and other firms which integrate AI into their products and processes. We think investors should ask companies for more clarity on what impact these regulations may have on their operations, how they prepare for these changes and what resources, including expertise, they require to enhance their policies and practices.

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