Navigating AI in Regulated Industries: A Guide to Regulatory Considerations

Artificial Intelligence

June 25, 2024

Artificial Intelligence

Artificial Intelligence (AI) is revolutionizing industries by enhancing efficiencies, enabling innovative solutions and transforming decision-making processes. However, as AI continues to infiltrate different sectors, particularly regulated industries like healthcare, utilities, aerospace and finance, it brings with it a slew of regulatory considerations. Understanding and navigating these considerations is crucial for organizations to harness AI’s potential while remaining compliant with regulatory frameworks. This blog delves into the key regulatory considerations concerning AI, privacy and other critical topics in regulated industries.

Current Privacy Regulations Partly Address AI Issues

Existing privacy laws aren’t well-designed to address AI’s unique challenges, particularly concerning the massive data processing capabilities and potential biases inherent in AI algorithms. For example, while the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) provide frameworks for data protection, they were not crafted with the intricacies of AI in mind. These regulations focus more on data collection, storage and consent, rather than the ways AI processes and learns from data.

Legislation specifically targeting AI is emerging, and the EU is taking the lead with their proposed AI Act. This regulatory framework aims to address the risks associated with AI applications, categorizing them based on risk levels and imposing strict requirements for high-risk AI systems. Similarly, in the U.S., New York City and California are introducing regulations to address bias and discrimination in AI-driven hiring practices. New York City’s Local Law 144 mandates annual, independent bias audits of automated employment decision tools (AEDTs) used for hiring and promotions, requiring employers to publish the results publicly. California’s proposed legislation also targets the use of automated systems in employment decisions, prohibiting discrimination based on protected characteristics and mandating transparency and record-keeping requirements for vendors and employers. This law includes provisions to ensure that automated tools do not perpetuate bias and require comprehensive documentation of the data and methodologies used in these systems.

Although new AI-specific laws can help address these gaps, the rapid evolution of AI technology underscores the need for a broader rethink of privacy and other laws. AI’s capabilities are exposing fundamental weaknesses in current data protection standards, such as the inadequacy of consent models in the face of AI’s predictive analytics and the challenges in ensuring transparency and accountability. According to Brookings, machine learning can infer sensitive information like political beliefs, health conditions and more, from seemingly harmless data, demonstrating the limits of current privacy protections​.

So, while emerging AI legislation is a step in the right direction, a more comprehensive overhaul of privacy laws is overdue to effectively manage the complex privacy issues posed by AI technologies. This overhaul should focus not only on the specificities of AI but also on creating flexible, adaptive legal frameworks that can keep pace with technological advancements. Now, let’s explore some more regulatory considerations for regulated industries concerning the implementation of AI.

Ensuring Data Privacy and Protection in AI

Data privacy is paramount in the age of AI. Regulated industries handle vast amounts of sensitive information, making compliance with data protection laws essential. Key regulations include the GDPR, which as we mentioned earlier, mandates strict data protection and privacy standards in the EU. Organizations must ensure AI systems comply with principles of data minimization and obtain explicit consent for data processing. The CCPA provides California residents with rights to know what personal data is collected and how it is used. AI systems must be designed to facilitate these rights, including data access, deletion and opt-out provisions. For healthcare organizations in the U.S., the Health Insurance Portability and Accountability Act (HIPAA) sets standards for protecting sensitive patient information. AI applications in healthcare must ensure compliance with HIPAA’s Privacy and Security Rules to safeguard patient data.

Addressing Ethical Considerations and Bias Mitigation

AI systems must be designed and deployed ethically, especially in regulated industries where decisions can significantly impact individuals’ lives. Regulatory bodies emphasize the need for transparency, accountability and fairness in AI. The Algorithmic Accountability Act, proposed in the U.S., aims to require companies to assess the impact of their AI algorithms, particularly focusing on detecting and mitigating biases. The EU’s Ethical Guidelines for Trustworthy AI stress the importance of ensuring AI systems are lawful, ethical and robust. They provide a framework for developing AI that respects fundamental rights, societal values and diversity.

Navigating Industry-Specific Regulations

Regulated industries must adhere to specific regulations governing their operations. Integrating AI into these industries necessitates compliance with sector-specific guidelines. In the finance sector, the Financial Industry Regulatory Authority (FINRA) oversees brokerage firms and exchange markets. AI applications in trading, fraud detection and customer service must comply with FINRA regulations to ensure market integrity and protect investors. For the aviation industry, the Federal Aviation Administration (FAA) regulates AI technologies like autonomous drones and predictive maintenance systems to ensure safety and reliability. In healthcare, AI-driven medical devices and diagnostic tools must obtain FDA approval, demonstrating safety, efficacy and compliance with regulatory standards.

Security and Risk Management

AI systems, while powerful, can be vulnerable to security breaches and cyberattacks. Regulated industries must implement robust security measures to protect AI systems and the data they process. The National Institute of Standards and Technology (NIST) Cybersecurity Framework provides guidelines for managing cybersecurity risks. Organizations should integrate these guidelines into their AI systems to enhance security and resilience against threats. ISO/IEC 27001, an international standard, outlines best practices for information security management. Compliance with ISO/IEC 27001 ensures that AI systems are designed with stringent security controls to protect sensitive information. Sodales for Enterprise Health, Safety and Employee Relations has successfully achieved this certification, emphasizing our commitment to maintaining the highest standards of cyber and information security in our operations.

Transparency and “Explainability”

Regulators emphasize the need for AI systems to be transparent and explainable. This is particularly important in regulated industries where decision-making processes must be auditable. Explainable AI (XAI) techniques and methodologies are critical in this case. Explainable AI (XAI) refers to techniques and methodologies designed to make the decision-making processes of AI systems understandable to humans, ensuring transparency and accountability by clarifying how and why AI algorithms produce specific outcomes. Regulators may require organizations to provide clear explanations of how AI systems arrive at specific decisions, ensuring accountability and trust.

International Considerations

AI regulations vary globally, and organizations operating across borders must navigate diverse regulatory landscapes. The Asia-Pacific Economic Cooperation (APEC) Cross-Border Privacy Rules (CBPR) framework facilitates data flow across APEC member economies while ensuring data privacy protections. Organizations using AI must comply with CBPR to enable cross-border data transfers. China’s Personal Information Protection Law (PIPL) imposes stringent requirements on data processing and cross-border data transfers. AI applications in China must adhere to these regulations to avoid penalties.

The Future of AI Regulations

The integration of AI in regulated industries offers immense potential but comes with significant regulatory considerations. Organizations must prioritize data privacy, ethical AI development, sector-specific compliance, security, transparency and international regulations to successfully navigate the complex regulatory landscape. By doing so, they can harness the transformative power of AI while maintaining compliance and fostering trust among stakeholders. As AI continues to evolve, staying informed about regulatory updates and best practices will be crucial for organizations aiming to leverage AI responsibly and effectively in regulated industries.




DISCLAIMERSodales Solutions Inc. uses artificial intelligence (“AI”) to optimize certain features of its platform and automate various tasks related to health, safety, employee, and labor relations management. These AI-powered features operate within defined parameters and are rigorously monitored to maintain accuracy and adherence to legal and ethical standards. We prioritize the protection of customer data by ensuring compliance with applicable privacy laws. Customer data is used solely for agreed-upon services, with no compromise to privacy.

Please note that this disclaimer is provided to customers for informational purposes only and is not intended to be a replacement for qualified legal advice.

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