The technological development of artificial intelligence (AI) is proceeding rapidly, with investment in AI-based solutions dramatically increasing across the globe. Europe is no exception. Given the huge impact that these technologies have on citizens and their fundamental rights, regulatory practices must be put in place. The European Commission has a clear strategy in place to foster digital transformation and – in an effort to protect citizens’ fundamental rights – the digital space and AI are being increasingly regulated. To this end, in April 2021, the Commission proposed a regulatory framework on AI (the AI Act). To ensure the fairness and trustworthiness of all high-risk AI systems that are deployed within Europe, the AI Act will require AI systems to undergo compliance and conformity assessments, which will be costly for companies, especially SMEs. SMEs are at the forefront of innovation in Europe, but they are easily crippled by high costs of compliance, risking bearing an unsustainable burden.
The main objective of the study was to estimate the costs that SMEs would face to ensure compliance with the requirements of the AI Act. To do so, we envisioned the following four scenarios:
- Scenario 1 adapted the IARR standard cost model – which calculates the total costs as the sum of compliance and conformity costs – to the modelled SME, dividing the total AI market value by the value of one AI unit, then multiplying it by compliance costs.
- Despite following the standard cost model approach, Scenario 2 calculated compliance costs on the basis of R&D value instead of the total AI market value.
- Scenario 3 provides an alternative approach whereby total costs are not calculated as a proportion of AI value, but rather, consist of software development costs and costs for compliance activities in relation to R&Ds.
- A fourth scenario (Scenario 3b) builds on the assumptions of Scenario 3 and further includes cost savings for SMEs arising from the involvement of European Digital Innovation Hubs (EDIHs) and Testing and Experimentation Facilities (TEFs).
The results of the analysis show that if compliance costs are calculated as in Scenario 3 (€301,200), they are more than 10 times lower than costs calculated as a direct proportion of the AI market value (about €4 million in Scenario 1). When EDIHs and TEFs are included in the analysis (Scenario 3b), costs are expected to further drop (€229,444), as are the FTEs needed to comply with the requirements.
As has been demonstrated in this paper, EDIHs and TEFs will play a significant role in mitigating the costs of compliance for SMEs when adhering to the AI Act requirements. Timely involvement of EDIHs and TEFs – through the development of common technological, legal, and management services – is recommended to activate economies of scale and generate cost savings for SMEs when complying with the new requirements. Additional research on the benefits SMEs could enjoy from EDIHs and TEFs, would help make a stronger case for AI adoption.