The European Union’s approach to regulating artificial intelligence marks a significant shift in how businesses must adapt their AI practices. This non-technical guide aims to help organizations navigate the complex landscape of the EU AI Act without requiring deep technical knowledge, while ensuring proper compliance and minimizing business disruption.
Key Components of the EU AI Act
The EU AI Act, published on July 12, 2024, and entering into force on August 1, 2024, establishes a regulatory framework that applies both within the EU and extends to organizations outside the EU whose AI systems’ outputs are used within the Union. This extensive regulation will transform how European businesses implement and utilize AI technologies.
Risk-based classification system
The EU AI Act introduces a tiered approach to regulation based on the potential risk level of AI applications. The system categorizes AI into five distinct levels: Prohibited, High-risk, Limited risk, Minimal risk, and General Purpose AI (GPAI). Many companies are now rushing to catalog their AI systems, with studies from KI Bundesverband e.V. suggesting that between 33% and 50% of AI systems could fall under the high-risk category. Spanish business association Consebro has begun offering guidance to help member companies understand which of their systems might require immediate attention under the new classification system.
Compliance requirements across different risk levels
Different provisions of the AI Act will apply at different times, with implementation dates ranging from February 2, 2025, to August 2, 2027, depending on the AI type. High-risk AI systems face the most stringent obligations, including conformity assessments and registration in a public database. These systems, particularly those used in recruitment or evaluating creditworthiness, trigger specific obligations for deployers, who must ensure human oversight, monitor system operation, and maintain logs for at least six months. The Act also provides special considerations for SMEs, including regulatory sandboxes for testing AI products and reduced compliance costs with assessment fees proportional to company size.
Practical steps for business preparation
The European Union’s AI Act will transform how businesses operate with artificial intelligence technologies across Europe. Published on July 12, 2024, and entering into force on August 1, 2024, this landmark regulation establishes a comprehensive framework for AI governance. Businesses need to begin preparing now, as different provisions will apply at various dates from February 2025 through August 2027, depending on the type of AI system.
The regulation applies to all businesses using AI within EU borders and has extra-territorial effect—meaning organizations outside the EU must comply if their AI system outputs are used within the EU. Small and medium-sized enterprises (SMEs) receive special consideration with 38 mentions throughout the Act, including provisions for regulatory sandboxes, reduced fees, and simplified documentation.
With potential fines reaching up to 7% of global annual turnover or €35 million for prohibited AI infringements, businesses must develop a strategic approach to compliance. The newly established EU AI Office (created May 29, 2024) will support implementation, while each Member State will appoint a Market Surveillance Authority to enforce the regulation.
AI inventory assessment strategies
The first crucial step for businesses is conducting a comprehensive AI inventory assessment. Begin by identifying all AI systems currently in use or under development within your organization. Document each system’s purpose, functionality, data inputs, and outputs.
Next, classify these systems according to the EU AI Act risk categories: prohibited, high-risk, limited risk, minimal risk, or general purpose AI (GPAI). Research suggests between 33-50% of AI systems could fall under the high-risk category, which includes systems used in recruitment, promotions, or evaluating creditworthiness.
For each identified system, evaluate compliance gaps against the relevant requirements. High-risk AI systems trigger specific obligations including human oversight, monitoring operations, ensuring relevant input data, maintaining logs for at least 6 months, informing employees, and completing Data Protection Impact Assessments.
SMEs should take advantage of dedicated resources when conducting their inventory assessments. The AI Act defines SMEs as organizations with fewer than 250 employees and turnover under €50 million (medium-sized), less than 50 employees with turnover under €10 million (small), or fewer than 10 employees with turnover under €2 million (micro).
Businesses should also assess their AI literacy needs, as the regulation requires staff to have sufficient knowledge about AI systems they operate. Consider training programs to build this competency across relevant teams.
Documentation and governance frameworks
Establishing robust documentation and governance frameworks is essential for EU AI Act compliance. Begin by creating comprehensive technical documentation for each AI system, particularly for high-risk applications which require detailed records of development, testing, and performance.
Implement risk management procedures that align with the Act’s requirements. These should include processes for identifying, analyzing, and mitigating risks associated with AI systems throughout their lifecycle. Document these procedures clearly to demonstrate compliance efforts during potential audits.
Develop internal governance policies that assign clear roles and responsibilities for AI oversight. Designate individuals responsible for compliance monitoring, risk assessment, and incident response. For high-risk systems, establish human oversight mechanisms that enable timely intervention when necessary.
Create transparency notices for AI systems that interact with EU citizens, generate synthetic content, or manipulate media. These must clearly inform users they are interacting with AI technology. Maintain logs of AI system operations, particularly for high-risk applications where records must be kept for at least six months.
SMEs can benefit from the simplified documentation options provided by the Act. Take advantage of regulatory sandboxes—controlled environments where businesses can test AI products with reduced regulatory burden. These frameworks offer priority access for SMEs, free of charge, and have shown significant benefits in other contexts (UK FCA sandbox increased fintech investment by 6.6 times and sped up market authorization by 40%).
Establish processes for ongoing compliance monitoring as different provisions of the Act come into force between 2025 and 2027. Remember that fines are proportional to company size, with SMEs facing lower maximum penalties than larger organizations. Stay informed about guidance from the EU AI Office and your national Market Surveillance Authority.
