ISO 42001 is the silver bullet for your AI compliance nightmares

Enterprises and software companies are diving headfirst into artificial intelligence (AI), but few are truly prepared for the risks and challenges that come with it. ISO/IEC 42001:2023 is the new international standard set to become the benchmark for AI management. Your regulatory obligations are increasingly onerous, especially with the 2024 EU AI Act threatening to punish violators with penalties twice as high as GDPR penalties.

It’s time to act. You must understand ISO 42001, why it matters, and how to leverage it to ensure your AI initiatives are innovative, responsible, and sustainable.

ISO 42001 isn’t just another standard—it’s a game-changer reshaping how enterprises manage AI responsibly and ethically

As AI permeates every corner of enterprise operations and software, companies need a standard to address everything from risk management to continuous improvement. Companies adopting ISO 42001 are positioning themselves as leaders in AI governance, ready to meet regulatory demands and societal expectations.

This proactive approach helps smooth their obligations to comply with increasingly stringent government standards. Take, for instance, the EU’s 2024 AI Act, which introduced penalties twice the size of GDPR penalties. As AI technology progresses, we can expect regulators to raise the compliance bar.

The comprehensive framework strikes a balance between enhanced trust, ensuring compliance, and addressing implementation challenges

This certification is essentially an AI management playbook structured into seven core requirements:

1. Context: Establish the legal, regulatory, technological, and market environment factors that apply to your organization and its key stakeholders such as customers, regulators, and employees.
2. Leadership: Commit to AI management responsibilities by establishing roles and responsibilities for managing AI, all governed by an AI policy.
3. Planning: Use a risk-based approach to managing AI that addresses topics such as bias, data privacy, and security. These must include risk assessments, risk treatment, and an AI system impact assessment.
4. Support: Provide sufficient resources to manage AI, provide training, create awareness, communicate policy standards, and document the AI management process.
5. Operation: Establish controls for AI-related activities, including the development, deployment, and monitoring of AI systems. They must implement risk controls during risk assessment phases and ensure they are effective. Finally, your organization must update its risk impact analyses for high-risk AI applications.
6. Performance evaluation: Monitor and evaluate the AI management system’s effectiveness through internal audits, feedback mechanisms, and performance reviews. Executive management must review the AI management process for effectiveness.
7. Improvement: Implement continuous improvement programs and track conformity and corrective action steps.

Exhibit 1: Adopting ISO 42001 isn’t without its challenges, but the benefits far outweigh the costs

Source: HFS Research, 2024

The adoption of ISO 42001 is reshaping the AI software landscape, with ORO Labs leading the charge

ORO Labs, a procurement orchestration system, made headlines this summer as the first software company to achieve ISO 42001 certification, setting a high bar for other software companies. The goal? To build trust and differentiate the company in a crowded market. Emily Rakowski, chief marketing officer of ORO Labs, puts it best: “We genuinely believe that AI and GenAI capabilities are game-changing. Achieving ISO 42001 certification validates our approach to responsible AI and assures our clients that our AI systems are designed with their best interests in mind.”

ORO Labs’ adoption of ISO 42001 establishes a foundational example of what to expect from service and technology providers:

• Increased market trust: The certification has significantly enhanced ORO Labs’ trustworthiness, particularly among enterprise clients with stringent IT security requirements. It is a door opener, accelerating sales by addressing AI ethics and security concerns.
• Strengthened client relationships: The certification reassures clients that ORO Labs’ AI systems comply with the highest AI governance standards. This has created new opportunities for collaboration, particularly with large enterprises prioritizing security and ethical AI practices.
• Competitive differentiation: ORO Labs’ ISO 42001 certification sets it apart in a market increasingly concerned with AI-related issues. This has become a key differentiator, particularly in sectors such as finance and healthcare, where regulatory compliance and ethical considerations are paramount for procurement organizations.

ISO 42001 is driving increased scrutiny, competitive advantage, and evolving expectations

As enterprises and software companies increase their AI management maturity, there are three major implications:

• Increased scrutiny: Enterprises are likely to place greater emphasis on evaluating the AI governance frameworks of their software vendors. Software companies will face increased scrutiny regarding managing AI risks, ensuring data privacy, and maintaining transparency in AI decision-making processes.
• Competitive advantage: Software companies that achieve ISO 42001 certification can leverage it as a competitive advantage. By adopting the standard, these companies can differentiate themselves in a crowded market and appeal to clients that prioritize ethical AI use.
• Market expectations: As more software companies adopt ISO 42001, it may become an industry norm. Enterprises might soon expect their AI vendors to be ISO 42001 certified as a minimum requirement, especially in regulated industries such as finance, healthcare, and government.

Enterprises need to start evaluating AI vendors based on ISO 42001

The risks associated with AI are real, and enterprises need to ensure their vendors are up to the task. ISO 42001 offers a consistent, systemic way to assess whether an AI vendor or another vendor using AI is truly committed to responsible AI practices. Here’s how to do it:

1. Request ISO 42001 certification: Make it a requirement for AI vendors to prove their compliance with the standard.
2. Update contracts: Even if vendors aren’t internally using the ISO 42001 standard, they should contractually commit to AI management that complies with regulations and provides you with the transparency to manage it.
3. Conduct audits: Don’t just take their word for it—review the vendor’s AI policies, data governance, and risk management processes.
4. Evaluate AI ethics: Assess how vendors handle bias, transparency, and human oversight.
5. Data privacy and security: Ensure the vendor’s approach to data protection is robust, especially in multitenant environments.
6. Continuous improvement: Vendors should continuously commit to refining their AI systems.
7. Ongoing dialogue: Keep the conversation going to ensure alignment with your evolving needs and regulatory landscape.

The Bottom Line: Don’t leave your AI initiatives to chance. By adopting ISO 42001, you’re not just complying with a standard—you’re taking control of your AI future.

By embracing this standard and demanding the same from your vendors, you ensure that your AI partners are just as committed to responsible innovation as you are.

Start by auditing your current AI vendors’ compliance with ISO 42001 and updating your procurement policies to include this certification as a mandatory criterion. The stakes are high, but with ISO 42001, you have the tools to succeed.