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Next week will be a committee week in the European Parliament.  Members of the European Parliament (“MEPs”) will gather virtually and in person in Brussels.  Several interesting votes and debates are scheduled to take place.

On Monday, the Committee on Security and Defense (“SEDE”) will have an exchange of views with the Commission Executive Vice-President

In April 2021, the European Commission released its proposed Regulation Laying Down Harmonized Rules on Artificial Intelligence (the “Regulation”), which would establish rules on the development, placing on the market, and use of artificial intelligence systems (“AI systems”) across the EU. The proposal, comprising 85 articles and nine annexes, is part of a wider package of Commission initiatives aimed at positioning the EU as a world leader in trustworthy and ethical AI and technological innovation.

The Commission’s objectives with the Regulation are twofold: to promote the development of AI technologies and harness their potential benefits, while also protecting individuals against potential threats to their health, safety, and fundamental rights posed by AI systems. To that end, the Commission proposal focuses primarily on AI systems identified as “high-risk,” but also prohibits three AI practices and imposes transparency obligations on providers of certain non-high-risk AI systems as well. Notably, it would impose significant administrative costs on high-risk AI systems of around 10 percent of the underlying value, based on compliance, oversight, and verification costs. This blog highlights several key aspects of the proposal.

Definition of AI systems (Article 3)

The Regulation defines AI systems as software using one or more “techniques and approaches” and which “generate outputs such as content, predictions, recommendations or decisions influencing the environments they interact with.” These techniques and approaches, set out in Annex I of the Regulation, include machine learning approaches; logic- and knowledge- based approaches; and “statistical approaches, Bayesian estimation, [and] search and optimisation methods.” Given the breadth of these terms, a wide range of technologies could fall within scope of the Regulation’s definition of AI.

Territorial scope (Article 2)

The Regulation would apply not only to AI systems placed on the market, put into service, or used in the EU, but also to systems, wherever marketed or used, “where the output produced by the system is used in the Union.” The latter requirement could raise compliance challenges for suppliers of AI systems, who might not always know, or be able to control, where their customers will use the outputs generated by their systems.

Prohibited AI practices (Article 5)

The Regulation prohibits certain AI practices that are deemed to pose an unacceptable level of risk and contravene EU values. These practices include the provision or use of AI systems that either deploy subliminal techniques (beyond a person’s consciousness) to materially distort a person’s behaviour, or exploit the vulnerabilities of specific groups (such as children or persons with disabilities), in both cases where physical or psychological harm is likely to occur. The Regulation also prohibits public authorities from using AI systems for “social scoring”, where this leads to detrimental or unfavourable treatment in social contexts unrelated to the contexts in which the data was generated, or is otherwise unjustified or disproportionate. Finally, the Regulation bans law enforcement from using ‘real-time’ remote biometric identification systems in publicly accessible spaces, subject to certain limited exceptions (such as searching for crime victims, preventing threat to life or safety, or criminal law enforcement for significant offenses).

Classification of high-risk AI systems (Article 6)

The Regulation classifies certain AI systems as inherently high-risk. These systems, enumerated exhaustively in Annexes II and III of the Regulation, include AI systems that are, or are safety components of, products already subject to EU harmonised safety regimes (e.g., machinery; toys; elevators; medical devices, etc.); products covered by other EU legislation (e.g., motor vehicles; civil aviation; marine equipment, etc.); and AI systems that are used in certain specific contexts or for specific purposes (e.g.; for biometric identification; for educational or vocational training, etc.).


Continue Reading European Commission Proposes New Artificial Intelligence Regulation

We cover below the background and detail, but in summary, these are the key elements of the CSRD proposal that corporates should be aware of:
  • Scope: The CSRD reporting requirements will apply to all large EU companies and all listed companies, including listed small and medium-sized enterprises (“SMEs”). This is estimated to cover around 49,000 companies.
  • Reporting: The so-called “double materiality” principle remains, but in-scope companies will now have to report according to mandatory sustainability standards. Simpler and “proportionate” standards will apply to listed SMEs.
  • Audit: The CSRD will require, for the first time, a general EU-wide audit (assurance) requirement for sustainability information.
  • Digitization: The sustainability information must be published in companies’ management reports — and not separately reported — and the information will need to be digitized or “tagged” so it can be incorporated into a planned European Single Access Point.
  • Timing: If the proposal is adopted and standards can be agreed in line with current ambitious estimates, large in-scope companies must comply from financial years starting on or after 1 January 2023, publishing reports from 2024; whilst SMEs have to comply from 1 January 2026.


Continue Reading The EU Corporate Sustainability Reporting Directive Proposal: What Companies Need to Know

Sustainable Finance Package: Context and CommentThe Commission’s intention with its Sustainable Finance Package is twofold: (1) in the short term, to set a clear regulatory framework to encourage investments that will contribute to a sustainable and inclusive economic recovery from the COVID-19 pandemic; and (2) in the long term, to ensure the transition to a carbon neutral EU economy by 2050, in accordance with the 2020 European Climate Law.  Following the adoption of the EU Taxonomy Regulation (explained further below), the Sustainable Finance Disclosure Regulation, and the Benchmark Regulation, which enhances the transparency of benchmark methodologies, the Commission has in this legislative package laid out the next building blocks for its envisioned sustainable finance ecosystem.

In addition to the impact on financial institutions and investors directly subject to the new laws, the Sustainable Finance Package may impact corporates in the following ways:

  • Corporates may be more likely to receive requests for data on their environmental and other sustainability practices as upstream capital markets participants grapple with new obligations to distinguish between green, “light green,” and other investments;
  • Corporates may be subject to direct requirements to report on activities relating to their environmental, social, and governance objectives;
  • Longer-term, the package may form the basis of a “blueprint” for wider stakeholders, meaning that corporates may need to improve performance against the standards, not just to attract capital, but also to remain competitive; and
  • On a global level, these EU sustainability measures have real potential to become gold standards and influence the investment market outside of the EU, a phenomenon known as the ‘Brussels Effect’.[1]


Continue Reading The EU’s Green Capitalism Takes Shape: Taxonomy Screening Criteria and Corporate Sustainability Reporting

On May 4, 2021, the European Commission rejected the UK’s application to join the Lugano Convention.  Whilst the Commission’s Communication is advisory only, it seems likely that both the Parliament and the Council (with whom the final decision lies by qualified majority) will follow the Commission’s lead.

Although the Convention may seem a rather abstract technicality, it is in fact an important legal tool, allowing for the cross-border application of civil and commercial law with practical implications for issues such as child maintenance in family law and facilitating international legal action for smaller companies.

What is the Convention?

The 2007 Lugano Convention is an international treaty concluded between the EU and three of the EFTA States.  A new State may join the Convention if its request to do so is approved by all contracting parties, but the competence to agree to the accession of a new Party lies exclusively with the EU.

The Lugano Convention is a so-called ‘Double Convention’ Treaty in that it not only governs international jurisdiction questions, but also the recognition and enforcement of foreign judgements in civil and criminal matters. Through this mechanism, the Convention gives legal certainty to businesses which operate across borders.

How Did it work for the UK as a Member State?

The EU’s original jurisdiction and enforcement treaty was the 1968 Brussels Convention, signed by France, Germany, Italy, The Netherlands, Luxembourg and Belgium.  The first Lugano Convention was signed in 1988 by the then 12 members of the European Community and the then six members of EFTA who were not eligible to sign the Brussels Convention.  The 1988 Lugano Convention was superseded by the 2007 version. For EU Member States, considerations of jurisdiction and enforcement are governed by the Brussels (Recast) Regulation 2012.

As a Member State of the EU, the UK legal services sector had gained significant value from the Regulation (and before it, the Convention), since they facilitated the UK being the chosen legal venue for legal disputes involving companies from across the EU.  Recognizing this value, the UK applied to accede to the Convention on 8 April 2020 as a third country outside the EU – the importance of accession was increased by the absence from the EU-UK TCA of a chapter on civil legal cooperation.
Continue Reading The Lugano Convention and The UK

With the EU-UK Trade and Cooperation Agreement signed and Brexit now becoming an increasingly settled fact, the areas of potential divergence between the UK and the EU are becoming clearer.  The strategy appears to be to identify those areas in which the UK already enjoys a competitive edge over its rivals and then work out

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