Report Summary: Future Steps for the EU's Proposed Artificial Intelligence Regulation
In a recent panel discussion hosted by the Center for Data Innovation, concerns were raised regarding the European Commission's Artificial Intelligence Act (AIA) and its potential impact on small businesses and startups.
Kilian Gross, one of the lead authors of the law from DG CNECT, stated that about 80 to 85 percent of AI does not need significant regulation. However, panelists expressed apprehensions about the AIA's implications for smaller entities.
One of the key concerns is the complexity and compliance burden that the AIA imposes. The legislation introduces a comprehensive legal framework with staggered obligations, including strict rules for high-risk AI systems and general-purpose AI (GPAI). Navigating this complexity can be especially difficult for smaller entities lacking dedicated legal or compliance teams.
Compliance with the AIA's detailed requirements for risk management, transparency, and governance may demand significant investment in expertise and infrastructure. This creates a heavier regulatory burden on startups and small businesses, which typically have limited financial and human resources compared to large AI companies.
Another concern is regulatory uncertainty and market impact. While the European Commission has introduced a voluntary Code of Practice for GPAI providers to clarify compliance paths, reactions have been mixed. Some major players welcome the guidance, while others reject the regulatory direction, generating uncertainty. This unpredictability can disadvantage startups that rely on clear and stable rules for planning and investment.
Panelists also worry that the AIA’s stringent requirements and enforcement might slow innovation, especially for smaller companies trying to bring AI products to market. Regulatory complexity could divert resources away from development toward compliance, reducing competitiveness in the fast-evolving AI ecosystem.
There are ongoing calls for the AIA to be simplified to ensure rules are "workable in practice," reflecting concerns that overly burdensome regulation may act as an obstacle rather than a facilitator of AI innovation within Europe.
Axel Voss (MEP, EPP) argued that the EU's priority should be to create a harmonized approach to AI that does not over-regulate, in order to spur the widespread adoption of the technology in Europe. Annika Linck of the European Digital SME Alliance points out that excessive compliance frameworks in Europe impose disproportionate administrative burden and cost on SMEs.
Svenja Hahn (MEP, Renew Europe) argues that the AIA should be amended to support SMEs, to avoid weakening them further in the digital industry. Hahn stresses that the AIA should offer new opportunities to SMEs in Europe, not just more bureaucracy, in a field that is in its infancy.
The AIA's primary parliamentary responsibility could fall to the Committee on Legal Affairs (JURI committee), due to its ability to expedite the process and potentially see the AIA adopted in the next 12 months. The purpose of the AIA is to safeguard citizens' remedies against rights violations and ensure that AI offers the same level of protection of rights that the analogue world does.
Despite the concerns, Kilian Gross recognizes the need to balance the AIA's regulatory aims with the need for Europe to innovate in the field of AI. Gross also argued that certain features of AI systems-opacity, difficulty to predict outcomes, challenges in explaining decisions, and data intensity-require a law that addresses and mitigates potential violations to the fundamental rights and the safety of European citizens.
Cornelia Kutterer, from Microsoft, had concerns about the obligation to use "error-free" and "complete" training and validation data in the AIA. Kutterer questioned whether any dataset can ever meet this bar, whether error-free datasets guarantee bias-free outcomes, and if the law's provisions account for the dynamic nature of the machine learning development lifecycle.
European startups find it difficult to scale their businesses due to the current business environment, which is overburdened with red tape. The AIA will likely exacerbate these barriers, and thus SMEs need targeted support from the Commission if they are to develop and deploy AI in the future.
References: 1. European Commission. (2021). Proposal for a Regulation of the European Parliament and of the Council on Artificial Intelligence (Artificial Intelligence Act). Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12528-Artificial-Intelligence-Act 2. European Commission. (2021). Code of Practice on Artificial Intelligence. Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12528-Artificial-Intelligence-Act/files/code_of_practice_on_artificial_intelligence_en 3. European Commission. (2021). A European approach to excellence and trust: A European strategy for data. Retrieved from https://ec.europa.eu/info/publications/european-approach-excellence-and-trust-european-strategy-data_en 4. European Parliament. (2021). European Parliament's position on the Artificial Intelligence Act. Retrieved from https://www.europarl.europa.eu/doceo/document/A-9-2021-0214_EN.html 5. European Commission. (2021). Commission Recommendation on measures to increase the availability of data and data-sharing. Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12528-Artificial-Intelligence-Act/files/recommendation_on_measures_to_increase_the_availability_of_data_and_data_sharing_en
- The European Commission's Artificial Intelligence Act (AIA) has raised concerns about the potential impact on small businesses and startups, particularly regarding complexity and compliance burden.
- Navigating the AIA's complex legal framework, including strict rules for high-risk AI systems and general-purpose AI (GPAI), can be especially difficult for small entities without dedicated legal or compliance teams.
- Compliance with the AIA's detailed requirements for risk management, transparency, and governance may demand significant investment in expertise and infrastructure, creating a heavier regulatory burden on startups and small businesses.
- The AIA's stringent requirements and enforcement could potentially slow innovation, especially for smaller companies trying to bring AI products to market, diverting resources away from development toward compliance.
- Ongoing calls for the AIA to be simplified emphasize concerns that overly burdensome regulation may act as an obstacle rather than a facilitator of AI innovation within Europe.6.Panelists argue that the EU's priority should be to create a harmonized approach that does not over-regulate, spurring the widespread adoption of AI technology in Europe.
- Svenja Hahn (MEP, Renew Europe) advocates for amendments to the AIA to support SMEs, avoiding further weakening them in the digital industry and providing new opportunities for European SMEs in the field of AI.
- The AIA's regulatory aims must be balanced with the need for Europe to innovate in the field of AI, ensuring that AI offers the same level of protection of rights as the analog world, while safeguarding citizens' remedies against rights violations.
