Background: Why the Law Passed
On May 17th, Colorado enacted America’s first AI governance law, marking a significant milestone in the regulation of artificial intelligence. This pioneering legislation mandates that any organisation deploying an AI system in Colorado must comply with a series of stringent standards designed to ensure the safety, fairness, and accountability of AI technologies.
The Colorado AI law was passed in response to growing global concerns about the rapid and often unchecked development of AI technologies. As AI systems become more integrated into various aspects of daily life, from healthcare to finance to law enforcement, the potential for misuse, bias, and unintended consequences has escalated.
Governments around the world are increasingly recognising the need for robust frameworks to manage these risks, and Colorado has taken a proactive step in this direction. The legislation reflects a broader trend towards greater scrutiny and regulation of AI, driven by incidents of AI failures, ethical controversies, and the need for public trust in these systems.
Politically, Colorado’s decision to pass the AI law was influenced by several factors. The state aimed to establish itself as a leader in AI regulation amidst a fragmented national landscape. With over 40 states considering AI-related legislation, Colorado’s lawmakers sought to set a precedent and provide a model for other states to follow. This move was partly inspired by Connecticut’s earlier, albeit unsuccessful, attempt to pass a comprehensive AI bill. By learning from Connecticut’s experience and tightening potential loopholes, Colorado’s legislators aimed to craft a more robust and enforceable framework.
Highlights of the Law
Scope and Applicability
- The law applies to any entity that develops, deploys, or significantly modifies AI systems used within Colorado.
- High-risk AI systems, which influence consequential decisions significantly impacting legal or economic interests, are specifically targeted.
High-Risk AI Systems
- Defined as AI systems that play a substantial role in making consequential decisions related to employment, housing, credit, lending, educational enrolment, legal services, and insurance.
- Exemptions include certain technologies such as cybersecurity and spam filtering when they do not make consequential decisions.
Risk Management and Impact Assessments
- Entities must implement robust risk management protocols for high-risk AI systems.
- Mandatory annual impact assessments to evaluate the AI systems’ effects and ensure they do not perpetuate bias or discrimination.
Transparency and Documentation
- Developers and deployers are required to publicly disclose information about their AI systems, including measures taken to prevent algorithmic bias.
- Documentation must detail the risk management strategies and any foreseeable algorithmic discrimination.
Consumer Protections
- AI systems interacting with consumers must disclose their AI nature.
- Synthetic digital content generated or manipulated by AI must also be disclosed to consumers.
Enforcement and Compliance
- The Colorado Attorney General has exclusive authority to enforce the law.
- Violations are treated as unfair and deceptive trade practices, subject to penalties and corrective actions.
- Entities can leverage internationally recognised standards like the National Institute of Standards and Technology (NIST) AI Risk Management Framework for compliance or ISO 42001.
Affirmative Defence
Developers and deployers have an affirmative defence if they adhere to recognised AI risk management frameworks and take proactive steps to detect and correct violations.
Future Modifications and Studies
The law allows for further study and potential revisions before its full implementation on February 1, 2026

Practical Terms: Conducting Business in Colorado Means you Are Affected
For businesses operating in or with the state of Colorado, the new AI law introduces significant implications. Regardless of where an AI system is developed or deployed—be it in Japan, Europe, or anywhere else—if it is used within Colorado, it must adhere to the state’s regulations.
Given Colorado’s significant economic influence and interconnectedness with the rest of the United States, it’s practically unavoidable for businesses operating nationally to comply with Colorado’s AI law. Colorado’s diverse economy, strong tech sector, and central geographic location mean that companies across the country often engage with clients, partners, or operations in the state.
This means that companies must reassess their AI strategies to ensure compliance, which may involve substantial changes to their operations, data management practices, and AI governance structures. Non-compliance could result in legal repercussions, financial penalties, and damage to reputation.
Case Study: Hypothetical Software Organisation – TechSoft
Background
TechSoft, a hypothetical Japanese software company, specialises in AI-driven customer service chatbots utilising natural language processing (NLP). These chatbots interact with customers, resolve queries, and provide support. TechSoft serves clients globally, including several major corporations in Colorado.
Compliance Challenges and Steps
1.Reviewing and Updating Algorithms:
- Bias Evaluation: TechSoft needs to scrutinise its NLP algorithms for potential biases in line with ISO 42001 standards. This involves analysing the training data for representativeness and fairness, and retraining models with diverse data sets to prevent discriminatory outcomes.
For instance, if the chatbots have shown a tendency to misunderstand or misinterpret inputs from specific demographic groups, these issues must be addressed. - Algorithmic Transparency: Regular updates and evaluations of algorithms are essential to maintain compliance and improve accuracy over time.
2.Transparency and Documentation:
- Decision-Making Processes: TechSoft must clearly document how their chatbots make decisions. This includes outlining the data sources used, the logic behind the algorithms as the ISO 42001 framework specifies, and how decisions are derived. This transparency is crucial for compliance and for building user trust.
- Public Disclosures: Detailed documentation should be made available to clients and regulatory bodies, explaining the functioning of the AI systems. This can be in the form of white papers, user manuals, and online documentation.
3.User Privacy and Data Security:
- Data Protection: Ensuring user data privacy is paramount. TechSoft must implement robust encryption methods to protect data both in transit and at rest. This includes using advanced encryption standards and ensuring data is anonymised where possible.
- User Consent: Explicit user consent must be obtained for data collection and use. This involves clear communication about what data is being collected, how it will be used, and ensuring users have the option to opt-out.
Implications of Non-Compliance
- Failure to comply with the Colorado AI law can have severe consequences for TechSoft, including:
- Loss of Contracts: Non-compliance could lead to losing key contracts with clients in Colorado.
- Legal Challenges: TechSoft may face legal actions and fines imposed by the Colorado Attorney General.
- Reputational Damage: Non-compliance can significantly harm the company’s reputation, affecting its business globally.
Explanation: What is ISO 42001?
Within the Colorado legislation there is a passage specifying
On And After February 1, 2026, And Except as Provided in Subsection (6) Of This Section, A Deployer Of A High-Risk Artificial Intelligence System Shall Implement A Risk Management Policy And Program To Govern The Deployer’s Deployment Of The High-Risk Artificial Intelligence System. The Risk Management Policy and Program Must Specify And Incorporate The Principles, Processes, And Personnel That The Deployer Uses To Identify, Document, And Mitigate Known Or Reasonably Foreseeable Risks Of Algorithmic Discrimination. The Risk Management Policy And Program Must Be An Iterative Process Planned, Implemented, And Regularly And Systematically Reviewed And Updated Over The Life Cycle Of A High-Risk Artificial Intelligence System, Requiring Regular, Page 10-Senate Bill 24-205 Systematic Review And Updates. A Risk Management Policy And Program Implemented And Maintained Pursuant To This Subsection (2) Must Be Reasonable Considering:
(I) (A) The Guidance And Standards Set Forth In The Latest Version Of The “Artificial Intelligence Risk Management Framework” Published By The National Institute Of Standards And Technology In The United States Department Of Commerce, Standard Iso/Iec 42001 Of The International Organization For Standardization, Or Another Nationally Or Internationally Recognized Risk Management Framework For Artificial Intelligence Systems, If The Standards Are Substantially Equivalent To Or More Stringent Than The Requirements Of This Part
ISO 42001 is a newly established international standard for AI management systems. It provides a comprehensive framework for organisations to develop, implement, and maintain AI technologies in a manner that is ethical, transparent, and accountable.
The standard covers various aspects, including risk management, bias mitigation, data privacy, and continuous monitoring and improvement of AI systems. By aligning with ISO 42001, organisations can ensure their AI practices meet globally recognised best practices, thereby enhancing trust and reliability in their AI deployments.
Why ISO 42001 Might Be the Framework of the Future
1.Comprehensive and Holistic Approach:
- ISO 42001 covers various critical aspects of AI governance, including risk management, bias mitigation, data privacy, transparency, and accountability. This comprehensive approach ensures that all potential issues related to AI deployment are addressed.
- By providing clear guidelines on these aspects, ISO 42001 helps organisations implement robust AI management systems that can pre-emptively mitigate risks and address ethical concerns.
2.Global Recognition and Standardisation:
- ISO standards are internationally recognised and respected. They provide a consistent framework that can be adopted globally, facilitating cross-border cooperation and compliance.
- As AI technologies often operate across multiple jurisdictions, a standardised approach like ISO 42001 can harmonise regulatory requirements, making it easier for companies to comply with laws in different countries.
3. Alignment with Emerging Regulations:
- Many emerging AI regulations are likely to be influenced by ISO 42001. For example, the European Union’s proposed AI regulations emphasise risk management and transparency, which are core components of ISO 42001
- Governments and territories looking to implement AI regulations may find it efficient to adopt ISO 42001 as it already encompasses many of the principles and best practices necessary for responsible AI governance.
4.Operational Benefits:
- Implementing ISO 42001 can streamline compliance processes, reducing the operational burden associated with meeting different regulatory requirements.
- A unified approach to AI governance allows organisations to maintain consistent practices across all jurisdictions.
This standardisation can lead to operational efficiencies, cost savings, and improved governance structures, ultimately benefiting the organisation’s overall performance.
5.Proactive Risk Management:
- ISO 42001 promotes proactive identification and mitigation of risks associated with AI systems. This forward-looking approach can help organisations avoid legal pitfalls, regulatory penalties, and reputational damage.
- By ensuring that AI systems are designed and deployed responsibly, organisations can protect themselves from the potential negative impacts of AI-related incidents
SCSK {digital}: a Methodical Approach
To thoroughly evaluate an AI system, at SCSK {digital}, we utilise a comprehensive approach that can assess whether an AI system falls under the Colorado law and the steps needed to make it compliant under the ISO 42001.
Gap Analysis: We conduct a thorough assessment of your current AI practices against the requirements of ISO 42001 and other relevant standards to identify areas of non-compliance.
Governance Framework: We implement a robust AI governance framework that includes policies, procedures, and roles for overseeing AI development and deployment. This ensures accountability and adherence to ethical guidelines.
Risk Management: We develop and implement a risk management process to identify, assess, and mitigate risks associated with AI systems, including ethical, legal, and operational risks.
Bias Mitigation: We deploy strategies to detect and mitigate biases in AI algorithms, ensuring fairness and non-discrimination. This includes regular audits and updates to the AI models.
Data Management: We ensure that data used in AI systems is managed responsibly, with attention to privacy, security, and ethical considerations. This includes data encryption, anonymization, and compliance with data protection regulations.
Continuous Monitoring: We set up mechanisms for the continuous monitoring and evaluation of AI systems to ensure ongoing compliance and performance improvement. This involves regular reviews and updates to the AI models and processes.
Training and Awareness: We provide comprehensive training and raise awareness among employees about AI ethics, compliance requirements, and the organization’s AI policies. This ensures that all stakeholders understand the importance of AI governance.
Conclusion
Achieving compliance with ISO 42001 will not only satisfy Colorado’s new AI law but also position organizations to meet emerging global AI regulations. By adopting these standards, businesses can demonstrate their commitment to responsible AI development and build trust with consumers, stakeholders, and regulators worldwide. As AI continues to evolve, proactive compliance with established standards will be crucial in navigating the complex landscape of AI governance and ensuring the ethical and effective use of AI technologies.
Governments across the world are likely to model their laws on ISO 42001, an emerging international standard for AI management systems. This standard provides a comprehensive framework to ensure that AI technologies are developed, deployed, and maintained in an ethical, transparent, and accountable manner.
Non-compliance could result in legal repercussions, financial penalties, and reputational damage. Therefore, it is crucial to take proactive steps now to align with these new regulations and leverage the benefits of a well-regulated AI framework.
Contact Us
At SCSK {digital}, we specialize in integrating AI solutions across various industries, ensuring that your operations not only comply with Colorado’s new AI law but also meet global standards like ISO 42001 and the EU’s AI regulations. Our comprehensive AI governance framework is designed to help any firm achieve and maintain compliance through a structured and methodical approach.
If you have any questions about AI implementation, its impact on your industry, or how to ensure compliance with Colorado’s new AI law, please feel free to reach out to us at digital@scskeu.com. Together, we can build a responsible and effective AI strategy for your business.
Author: Sim Riyat, AI Specialist