📣 The Regulation of Fine-Tuning: Federated Compliance for Modified General-Purpose AI Models

Authors: Philipp Hacker and Matthias Holweg

Abstract: This paper addresses the regulatory and liability implications of modifying general-purpose AI (GPAI) models under the EU AI Act and related legal frameworks. We make five principal contributions to this debate. First, the analysis maps the spectrum of technical modifications to GPAI models and proposes a detailed taxonomy of these interventions and their associated compliance burdens. Second, the discussion clarifies when exactly a modifying entity qualifies as a GPAI provider under the AI Act, which significantly alters the compliance mandate. Third, we develop a novel, hybrid legal test to distinguish substantial from insubstantial modifications that combines a compute-based threshold with consequence scanning to assess the introduction or amplification of risk. Fourth, the paper examines liability under the revised Product Liability Directive (PLD) and tort law, arguing that entities substantially modifying GPAI models become “manufacturers” under the PLD and may face liability for defects. The paper aligns the concept of “substantial modification” across both regimes for legal coherence and argues for a one-to-one mapping between “new provider” (AI Act) and “new manufacturer” (PLD). Fifth, the recommendations offer concrete governance strategies for policymakers and managers that propose a federated compliance structure, based on joint testing of base and modified models, implementation of Failure Mode and Effects Analysis and consequence scanning, a new database for GPAI models and modifications, robust documentation, and adherence to voluntary codes of practice. The framework also proposes simplified compliance options for SMEs while maintaining their liability obligations. Overall, the paper aims to map out a proportionate and risk-sensitive regulatory framework for modified GPAI models that integrates technical, legal, and wider societal considerations.

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