Deciphering the EU AI Act + What It Means for Businesses

March 14, 20243 min read

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At a glance

  • The European Union's parliament recently passed the AI Act, a pioneering step towards comprehensive regulation of artificial intelligence (AI) technologies. 
  • With discussions dating all the way back to 2021, the EU AI Act outlines a detailed framework for governing AI systems—aiming to ensure their safe and ethical use across various sectors. 
  • This guide breaks down the key provisions of this act, including how they'll affect businesses in the space, and explores why AI governance tools will be key to future compliance.

Key components of the EU AI Act

A risk-based approach

 The AI Act adopts a straightforward risk-based approach. Certain AI applications, such as those involving cognitive behavioral manipulation, social scoring, and biometric identification, are flat-out banned. Other less risky categories are subject to rules around assessments, transparency, and appropriate disclosures.

  • Unacceptable Risk: Certain AI systems are deemed to pose an unacceptable risk to people's safety, livelihoods, and rights, leading to them being outright banned. This includes AI technologies that manipulate human behavior, government social scoring systems, and real-time biometric identification systems in publicly accessible spaces.
  • High Risk: AI systems categorized as high risk are those involved in critical sectors such as healthcare, policing, transport, and legal systems. These require a comprehensive assessment before they’re deployed, ensuring they’re transparent, accurate, and have oversight mechanisms to prevent harm or misuse.
  • Limited Risk: For AI applications with limited risk, such as chatbots, transparency to users is required. Users must be informed they’re interacting with an AI system, allowing them to make informed choices regarding their engagement with these technologies.
  • Minimal Risk: The vast majority of AI systems fall into the minimal risk category, where the regulatory framework imposes no additional requirements. These AI applications are free to develop and deploy at will.

Transparency and accountability

While generative AI tools, like ChatGPT, don't fall into the high-risk category, they still have to follow requirements around transparency, appropriate disclosures, and copyright. This includes disclosing AI-generated content, preventing the creation of illegal content, and sharing summaries of copyrighted data used for training.

Enforcement and penalties

The AI Act introduces strict enforcement measures, with fines for non-compliance reaching up to 35 million Euros or 7% of worldwide annual turnover.

Rolling implementation

The EU AI Act will be rolled out gradually, with different provisions taking effect at different times. Prohibited AI systems must be banned within six months, while rules for general-purpose AI systems will kick in after a year. The entire act will be fully enforceable within two years.

How will the EU AI Act affect businesses?

The EU AI Act is poised to have a profound effect on businesses by establishing stringent guidelines for the use and management of personal data by AI systems. Under this new framework, organizations must embed privacy by design into the development of AI applications, ensuring that privacy is considered from the outset.

Data mapping will be key to compliance

Effective data mapping and governance will be critical to EU AI Act compliance. Data mapping allows organizations to understand where and how personal data is used within AI systems, ensuring compliance with relevant privacy regulations. This comprehensive understanding is critical in identifying high-risk areas that require additional safeguards to protect individuals' privacy.

The imperative of robust data governance

Robust AI governance will be essential for enforcing accountability and ensuring data is handled ethically throughout its lifecycle. This includes the adoption of policies for data quality, usage limits, and the protection of sensitive information. Together, data mapping and governance provide a structured approach to managing personal data in a way that aligns with the EU AI Act’s objectives of promoting safe, ethical, and compliant AI deployment.

Increased transparency and accountability

The EU AI Act requires that AI providers publish transparency notices that accurately describe their data collection and processing practices. Organizations will also need to be able to explain how AI models reached particular decisions, providing individuals with the right to contest automated decisions that affect them. The Act’s transparency provisions serve as a powerful mechanism for individuals to exercise control over their personal data, enhancing privacy rights and promoting trust in AI technologies.

Enhanced data protection measures

Under the new EU AI Act, organizations must implement several vital data protection measures to ensure compliance. These measures include pseudonymization techniques, secure storage of data, and controlled access mechanisms for personal data—all of which help ensure that only authorized personnel can access sensitive information.

Data minimization and retention

The EU AI Act emphasizes the principle of data minimization, which mandates that AI systems should collect, process, and store only the personal data necessary to achieve their purpose. This rule is aligned with the broader objective of protecting individual privacy rights and minimizing the risk of data breaches. Under this principle, businesses are obliged to regularly evaluate their AI systems, in order to ensure their data collection is strictly relevant to the processing task at hand.

Conducting regular risk assessments

The EU AI Act’s requirements around risk assessments are aimed at preemptively identifying the hazards that AI systems may pose to public safety, privacy, and ethical standards. For AI developers and deployers, this means conducting comprehensive evaluations of their systems before they’re introduced to the market and periodically thereafter. 

For high-risk AI applications, businesses must ensure a detailed analysis covering the extent to which these systems could influence human rights, contribute to discriminatory practices, or undermine data protection principles. 


The EU AI Act marks a significant step in regulating AI technologies, with profound implications for businesses and privacy programs alike. By embracing ethical AI practices, ensuring regulatory compliance, and prioritizing consumer trust, businesses can navigate the evolving landscape of AI governance while safeguarding individual privacy rights and fostering innovation.

As regulatory frameworks continue to evolve, staying informed and proactive in adapting to these changes will be essential for businesses operating in the AI ecosystem.

About Transcend Pathfinder

With Pathfinder, Transcend is building the new frontier of AI governance software—giving your company the technical guardrails to adopt new AI technologies with confidence.

As AI becomes integral to modern business, companies face two distinct challenges: maintaining auditability and control, while managing the inherent risks. Without the right systems in place, businesses are slow to adopt AI, and risk losing their competitive edge.

Pathfinder helps address these issues, providing a scalable AI governance platform that empowers companies to accelerate AI adoption while minimizing risk.

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