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A summary of the CMA's latest paper on AI Foundation Models (FM), and its plans to help encourage open, fair competition and good consumer outcomes in the FM sector.

The UK’s Competition and Markets Authority (CMA) has published a follow-up paper to its AI Foundation Models (FM): initial report which was released in May 2023. This update comes amidst unprecedented levels of innovation and market developments in generative AI, which has seen businesses of all sizes grapple with how these innovations can be used to achieve a competitive advantage, and provide consumers with better products and services.

The CMA report sets out:

1. An update of the Foundation Model sector since its last report in May 2023;
2. A set of principles for guiding the market to positive outcomes for competition and consumer protection;
3. Key risks for fair, open and effective competition as well as an assessment of potential routes to mitigation and actions;
4. Next steps for the CMA’s AI FM programme of work.

The paper comes after the publication of the UK Government's plans to regulate AI, which will see individual regulators use their existing powers and responsibilities to address the development of AI technologies within their remit. Several regulators including the CMA have been requested by the UK Government to publish a strategic action plan for AI before 30 April 2024.

However, the UK Government has not ruled out potentially legislating for AI in the future, and will later this year lay out the case for introducing a set of targeted, binding requirements on developers of highly capable general-purpose AI models.

Please note the below is a high-level summary of the paper, and we encourage you to work with legal qualified experts or consumer groups to understand how it could affect you as a consumer, or your business.

A fast-evolving and complex sector

In under a year, the CMA has identified significant and rapid developments in the FM sector; not only are new FM models fast entering the market, but their use by consumers and businesses is growing. However, their development depends on availability and access to key enablers including compute via cloud services, data, expertise and state-of-the-art AI accelerator chips.

Ultimately, gaining sustainable access to these levers is difficult for all businesses, with large technology companies typically likely to have the greatest access. Similarly, large tech companies are more likely to be engaged in the FM value chain – whether through directly integrating them into existing, consumer facing digital services and products, or providing services at multiple levels of the value chain. This is creating an increasingly complex web of strategic partnerships and vertical integration between firms.

With these factors combined, the CMA raises concern around the risk of the largest incumbent technology firms profoundly shaping the development of the FM-related market in ways that are detrimental to fair, open and effective competition and consumer outcomes.

The CMA sets out three key risks:

1. Firms that control critical inputs for developing FM’s (e.g., compute, data, expertise) may restrict access to them to shield themselves from competition.
2. Powerful incumbents could exploit their positions in consumer or business facing markets to distort choice in FM services and restrict competition in FM deployment.
3. Powerful incumbents could exploit their positions in consumer or business facing markets to distort choice in FM services and restrict competition in FM deployment.

Against each risk, the CMA sets out a series of actions it will take such as examining market conditions for enablers of FM model development such as cloud and chips, leveraging its new powers under the Digital Markets, Competition and Consumers Bill, and stepping up its use of merger control to assess new partnerships that emerge between incumbents and other businesses.

Principles to guide the sector towards positive outcomes

To aid in these interventions, the CMA will be guided by a set of principles, which include:

• ongoing access to inputs;
• sustained diversity of business models and model types;
• sufficient choice for businesses and consumers so they can decide how to use FMs;
• fair dealing (no anti-competitive conduct);
• transparency so consumers and businesses have the right information about the risks and limitations of FMs
• and ensuring FM developers and deployers are accountable for FM outputs.

These principles are intended to align with those set out in the Government’s approach to AI regulation, which the CMA intends to continue to work closely with, alongside the DRCF. The CMA has also committed to the following actions to examine the impact of FMs on competition and consumer protection:

• A forthcoming paper on AI accelerator chips
• Joint research in the DRCF on consumers’ understanding and use of FM services, and participation in the DRCF AI and Digital Hub pilot due for launch in Spring 2024
• A joint statement with the ICO on the interaction between competition, consumer protection and data protection in FMs

An update on this area of work will be provided by the CMA in Autumn 2024.