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A lot has been written about President Biden’s sweeping Executive Order on AI and its significance, especially considering the roadblocks making federal AI legislation unlikely to be passed in the near term. Liz noted the importance of considering third-party risk and that it’s not a stretch to think this developing issue is on the SEC’s radar. Beyond that, I must admit that I had a hard time wrapping my head around what this means for public companies from the fact sheet — especially those that aren’t government contractors or AI/technology companies.

Thankfully, we’ve gathered numerous client alerts on the Executive Order in our “Artificial Intelligence” Practice Area and many of them have helpful explanations. In this alert, DLA Piper explains expected forthcoming regulatory changes as a result of the Executive Order and the short timeframe for these:

The EO requires the development (mostly within three to twelve months) of standards, practices, and even new regulation for the development and use of AI across most aspects of the economy and in significant regulated areas such as consumer finance, labor and employment, healthcare, education, national security, and others, as discussed more fully below.

Except for new reporting requirements for developers of large language models and computing clusters, most of the EO’s provisions do not immediately change regulatory requirements. The EO does, however, urge federal regulators and agencies to use their existing authority to stress test the security of AI systems, prevent harms such as discrimination, loss of employment, foreign threats to critical infrastructure, and talent vacuums. It makes clear that the resources and authority of the federal government will be focused on the safe, secure, and ethical use of AI in every major aspect of commerce and societal affairs. We anticipate that as these mandates are fulfilled, and guidelines, standards, and rules are developed over the next twelve months, significant new requirements will be forthcoming.

Also, this Goodwin alert explains the wide-ranging implications for government contractors and beyond and how the Executive Order will impact the many current and potential applications of AI:

The EO applies directly to federal government agencies and will significantly impact the way the government funds AI development and procures AI products and services; however, its impacts also will be felt by the private sector, including those companies providing services and supplying materials to the US government and throughout the federal procurement supply chain. The EO may ultimately create “de facto” standards and practices in the private sector given the size and influence of the US government as a customer to major technology companies, a funding source for and regulator of research and development, and payer in the healthcare space.

On the reporting front, this may be an important development to consider if you disclose AI-related risk factors or known trends/uncertainties or plan to do so in your next 10-K. To that end, this Intelligize blog from July discussed how certain companies addressed risks related to AI in their disclosures to date and links to those disclosures.

– Meredith Ervine