Table of Contents
Recommendation
While many CEOs view AI regulations as constraints, it’s a mistake to ignore the opportunities collaborating with governments to create “regulatory sandboxes” might afford you. The Boston Consulting Group provides a useful introduction to an increasingly complex web of AI regulation, assuring CEOs that innovation and regulation can coexist. Government incentive programs can provide companies with unique opportunities, provided you invest in sharing your internal expertise with those shaping emerging regulatory AI ecosystems.
Take-Aways
- The emergence of AI regulations provides opportunities for collaboration.
- Navigate the complexities of regulatory law by creating your own unified framework.
- Protect innovation by sharing your unique knowledge and expertise with regulators.
Summary
The emergence of AI regulations provides opportunities for collaboration.
CEOs can’t afford to ignore AI regulation anymore: When Meta violated EU-US data transfer rules, it faced a fine of $1.3 billion, demonstrating the severe consequences of noncompliance. That said, CEOs would be remiss to view regulation solely as a constraint, as companies also have opportunities at this pivotal stage in regulation to collaborate with policy-makers in developing mutually beneficial regulations. Ideally, AI regulations will both provide companies with effective safeguards and leave room for innovation and experimentation.
“At this pivotal moment, companies pursuing AI transformation must have a deep understanding of current and emerging regulations, so they can ensure full compliance and engage productively with regulators through data-driven dialogue.”
Governments around the world are piloting programs that promote innovation within “regulatory sandboxes,” which provide access to unique data and which experiment within a “safe,” government-established, digital space. Governments have also launched incentive programs to stimulate growth. For example, in India, an association of banks collaborated with government to create the Unified Payments Interface, an interoperable approach to digital payment transactions. The government gave banks incentives, such as lowered transaction fees, which fueled innovation: Today, nearly 40% of the world’s digital payment transactions and global fintechs utilize India’s platform.
The European Union is leading the way when it comes to data and digital regulation – the EU AI Act will effectively create regulatory sandboxes in which businesses can begin their AI transformation journey and fuel innovation, while ensuring compliance. The AI Act will complement and work with other legislation within the EU’s complex regulatory portfolio, which includes the Data Governance Act, the Digital Markets Act, the Digital Services Act and the Data Act. CEOs hoping to navigate the EU’s intricate framework should identify commonalities and differences between legislative frameworks, creating an overarching, integrated methodology their company can easily follow.
“Creating an overarching framework will require a significant upfront investment but will result in considerable time and cost savings in the long term. Besides managing existing regulations more effectively, companies will be prepared for future developments.”
For global companies, significant regulatory challenges can occur, as different countries may employ incompatible frameworks. For example, Italy banned ChatGPT, despite the fact that other countries adopting the EU’s General Data Protection Regulation (GDPR) have not. To ensure compliance with regional laws, organizations should add additional branches to the unified framework they create when they must account for regulatory inconsistencies, managing these branches via a centralized committee, which should appoint a chief AI ethics officer to manage.
Protect innovation by sharing your unique knowledge and expertise with regulators.
According to a Boston Consulting Group survey spanning six countries, 61% of industry incumbents report lacking the necessary AI regulation. Many companies have set up their own review boards to ensure they adopt AI within an ethical framework. But they need to work faster and collaborate with regulators to keep pace with change.
“Executives should consider new and upcoming AI policies as a forcing function.”
Companies would benefit from sharing their insights, risk assessments and technical expertise with regulators. They are uniquely positioned to understand the limitations and nuances of this emerging technology, as well as the costs and benefits of implementing different strategies. A more productive and proactive conversation between CEOs and regulators will ensure that they have the information they need to best serve the technology they’re tasked with overseeing.
About the Authors
Kristen Rulf, François Candelon, Gaurav Jha, Clément Dumas and Max Männig are professionals with the Boston Consulting Group.