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A new publication from the UK’s financial regulator signals to firms that they should take steps to manage risks in the use of AI.

By Stuart Davis, Fiona M. Maclean, Gabriel Lakeman, and Imaan Nazir

The UK’s Financial Conduct Authority (FCA) has published its latest board minutes highlighting its increasing focus on artificial intelligence (AI), in which it “raised the question of how one could ‘foresee harm’ (under the new Consumer Duty), and also give customers appropriate disclosure, in the context of the operation of AI”. This publication indicates that AI continues to be a key area of attention within the FCA. It also demonstrates that the FCA believes its existing powers and rules already impose substantive requirements on regulated firms considering deploying AI in their services.

The directives aim to assist claimants in proving the causation of damages and product defectiveness in complex AI systems, creating legal certainty for providers.

By Deborah J. Kirk, Thomas Vogel, Grace E. Erskine, Ben Leigh, Alex Park, and Amy Smyth

On 28 September 2022, the European Commission issued two proposed directives to reform and clarify liability rules on artificial intelligence (AI):

  1. The Directive on Adapting Non-Contractual Civil Liability Rules to Artificial Intelligence (AI Liability Directive) introduces rules on evidence and causation to facilitate civil claims for damages in respect of harm to end users caused by AI systems.
  2. The Directive on Liability for Defective Products (Revised Product Liability Directive) seeks to repeal and replace the 1985 Product Liability Directive (Directive 85/374/EEC) with an updated framework to better reflect the digital economy. The Revised Product Liability Directive proposes to explicitly include AI products within the scope of its strict liability regime and to modify the burden of proof for establishing defectiveness of technically or scientifically complex products like AI systems.

The agency’s consultation on the post-Brexit regulatory framework for medical devices and diagnostics aims to support innovation and sustainability, among other goals.

By Eveline Van Keymeulen, Ranulf Barman, Oliver Mobasser, and Frances Stocks Allen

A 10-week consultation launched by the UK’s Medicines and Healthcare products Regulatory Agency (MHRA) on the future regulation of medical devices, including in vitro diagnostics (IVD), will close on 25 November 2021 at 11:45 p.m. GMT.

The backdrop for the consultation is the…

Healthcare artificial intelligence is a promising sector for PE investors that requires careful navigation, particularly given divergent regulatory approaches.

By Jon Fox, Frances Stocks Allen, Catherine Campbell, Tom Evans, and David Walker

PE funds invested more than US$14 billion in healthcare (including pharma) in 2019, up from US$3.5 billion in 2013, and interest is likely to grow further, given the global impact of COVID-19. In our view, the application of artificial intelligence (AI) to healthcare and pharma is of increasing importance, and is likely to bring new deal opportunities for PE investors.

With the explosion of AI applications, private equity houses and their portfolio companies must understand where key opportunities lie.

By Tom Evans, Kem Ihenacho, David Walker, Laura Holden, Hector Sants, Claudia Sousa, Catherine Campbell, and Patricia Kelly

Click for larger image.

Artificial intelligence (AI) developments provide increasing opportunities for private equity, including deal sourcing and portfolio company analysis/enhancement, particularly in businesses that can adopt a customer subscription model or leverage big data opportunities. However, the adoption of AI technologies, and investments in new AI businesses, pose significant challenges. To ensure that time and capital are deployed productively, firms must understand the market space and usage for these tools, and the workings and accuracy of any underlying technology. How technology models and algorithms work, where underlying IP resides, and where data is stored are key. Whilst the use of AI is often discussed, it is much less often understood; we are seeing an explosion of AI applications and PE houses and their portfolio companies need to understand where the opportunities are for them to exploit.

A Tool to Secure Deal Opportunities and Drive Portfolio Company Growth 

According to a survey conducted by Intertrust, 90% of private equity firms expect AI to have a transformative impact on the industry. AI-backed data analytics are playing a growing role in analysing and identifying deals. QuantCube Technology, for example, provides in-depth data analysis, drawing on customer reviews and social media posts to develop predictive indicators of events, such as economic growth or price changes. There are now companies offering AI-driven technologies that claim to help source PE deals. While this presents a potentially compelling use of AI for investors, it remains to be seen whether these technologies will deliver results. 

By Andrew Moyle and Stuart Davis

The UK government’s 2017 Autumn Budget included some measures of particular interest for fintech firms, demonstrating the government’s continued commitment to making the UK a world-leading fintech hub.

The government has provided only scant detail on these measures at present, but no doubt firms will be watching closely to see how they are developed, and what benefits they can bring for the fintech sector.

Pioneer Fund

First, the government is planning a “Regulators’ Pioneer Fund” — a £10 million fund to help unlock the potential of emerging technologies. The aim is to help regulators develop innovative approaches aimed at getting new products and services to market.