UUMJLS 11(2), July 2020 (183-201)

How to cite this article:

Abdul Manap, N., & Abdullah, A. (2020). Regulating artificial intelligence in

Malaysia: The two-tier approach. UUM Journal of Legal Studies, 11(2), 183-201.
https://doi.org/10.32890/uumjls.11.2.2020.8779

REGULATING ARTIFICIAL INTELLIGENCE IN

MALAYSIA: THE TWO-TIER APPROACH

Nazura Abdul Manap & 1Azrol Abdullah

Faculty of Law, Universiti Kebangsaan Malaysia

1
Corresponding author: [email protected]

Received: 13/2/2020 Revised: 3/5/2020 Accepted: 20/6/2020 Published: 31/7/2020

ABSTRACT

Artificial Intelligence (AI) has been developed under the field

of computer science for more than 50 years. Somehow AI only
gained prominence in the recent millennia when necessary tools
to test the hypothesis on the nature of thought became available.
Unfortunately, the absence of legal regulations on AI has caused
AI to exist in a regulatory vacuum and nature abhors a vacuum.
The law is at a state of confusion about who shall be
blameworthy for the damage caused by AI. The prevalence of this
problem triggers the expatiation of this review article in defining
the scope of AI that must be regulated. The objective of this
article is to suggest that AI with certain capabilities must be
placed in the legal realm. This article will first begin by
highlighting the problems associated with AI before directing the
focus of the discussion to the various reasons that justify for AI to
be regulated. This article will then explore the various
approaches which can be adopted by the government in
regulating AI. These approaches can be a workable formula to
procure the two-tier method in regulating AI in Malaysia. The
methodology devised for this article is based on doctrinal research
where most of the materials were derived from text books, online

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resources and established academic databases. The findings made

in this article suggest that AI must be regulated independently from
existing legal frameworks. Reason being, AI capabilities are unique
in its own sense and therefore cannot be treated like other previous
technologies. The outcome of this article may also be able to
contribute to issues relating to the legal liability of AI in Malaysia.

Keywords: AI, artificial intelligence, liability, regulating AI, risks.

INTRODUCTION

Artificial intelligence (AI) is changing human lives. AI has provided

enormous benefits to humans for more than 50 years, ranging from
voice assistance like Alexa and Siri, to self-driving vehicles, search
engines that learn from our browsing habits and email systems
which are capable of identifying spam emails. AI technology has the
ability to perform cognitive functions like humans and able to solve
problems in a way that may never have been thought of by humans
(Gerstner, 1993). Whenever AI deals with a problem, it will look
for solutions without depending on any teaching algorithm to solve
problems (Poole & Mackworth, 2010).

Although AI may possess impressive capabilities and appears to be

harmless, AI can pose a real threat to humans. Past incidents have
demonstrated that AI is indeed fallible (Sipper & Moore, 2017). AI
can be a threat if its design is flawed regardless of how small the
purpose of its design (Omohundro, 2008). It is impossible to design
an error-free code because on average, any software programme will
have at least one to three bugs in every 100 statements (Ahamed,
2009). By taking into account these possibilities, AI cannot be left
to exist in a regulatory vacuum.

The absence of regulatory framework on AI has now become a

global concern that affects societies, individuals and may have
shaken some of the legal frameworks (Cerka et al., 2015). Dearth
of legal scholarships has resulted in potential approaches which
can be adopted to regulate AI including stretching existing laws to
accommodate AI (Calo, 2015). Existing laws are unable to address
the legal conundrums created by AI due to the technological fluidity

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of AI (Cerka et al., 2015). Stretching the existing laws to AI will

eventually reach a breaking point when AI systems become more
autonomous and disconnected from humans who have control over
it (Sullivan & Schweikart, 2019). Conventional approaches such as
product liability, research and development oversight and tort liability
are not suitable to manage the risks associated with AI (Scherer,
2016). This article will illustrate the importance of regulating AI,
but does not intend to establish a blueprint or guideline template.
Instead, this article will suggest important elements for the two-tier
approach.

WHY REGULATE AI

The frequency of damage which can be inflicted by AI on humans

corresponds to the increasing number of AI usage in human
activities. In 2017, the European Parliament during its Plenary
Sitting acknowledged that traditional rules will not suffice to give
rise to legal liability for any damage caused by a robot (Delvaux et
al., 2017). The majority of AI industry players are also advocating
for specific regulations on AI. Even Tesla founder, Elon Musk has
demanded for AI to be regulated because AI is akin to ‘summoning
a demon’ if left uncontrolled (Yeoh, 2017). Similar sentiments was
also expressed by Stephen Hawking when he drew an analogy
about the importance of regulating AI after observing AI’s ability
to destroy society (Clifford, 2017). The conservatives however
retorted that the time is still too early for AI to be regulated because
existing laws are sufficient to deal with AI issues (Reed, 2018). The
justifications to regulate AI are anchored on two grounds namely,
(a) infringement of fundamental rights; and (b) loss or damage as a
result of AI decision(s).

Infringement of Fundamental Rights

The first justification to regulate AI is to prevent the infringement of

human rights by AI. Some may ponder in what way(s) is AI capable
of violating human rights? To answer this question, one must be
able to appreciate the AI techniques itself. A symbolic reasoning AI
may not be too threatening to humans as much as machine learning

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AI. However, machine learning AI which collects data from past

experiences and decisions will result in grave consequence on human
rights. Machine learning techniques may cause AI’s decisions to be
biased and consequently violates fundamental human rights.

The court’s decision in State v Loomis1 became the leading case which
illustrates the extent of damage that AI can cause on human rights.
In this case, the accused pleaded guilty to the criminal charges made
against him. The court had relied upon COMPAS risk assessment
score to deny the accused probation and sentenced the accused to
six years imprisonment and five years extended supervision. It was
reported that COMPAS was prone to mistakenly label black offenders
as likely to reoffend by flagging them with 45-24 per cent higher
risk to reoffend than white people (Buranyi, 2017). The case went
on appeal but the appeal was dismissed by the Wisconsin Supreme
Court. Despite the dismissal, the Supreme Court acknowledged that
the risk assessment score generated by COMPAS failed to explain
the manner of data being employed to generate the results (Liu et
al., 2019). The court’s reliance on the conclusion made by COMPAS
was a flagrant breach of the accused’s right to be heard and right to
be treated equally before the law.

Another controversial AI system which affected the issue of privacy

is Alexa. Alexa is an AI application that functions as an intelligent
personal assistant with the capability for interaction, listening,
music playback, streaming, controlling smart appliances for home
automation and to some extent, possess certain embedded skills.
In November 2017, Alexa left to its own devices decided to hold a
house party while its owner was away. Again, in May 2018, Alexa
had recorded a conversation of its owner and shared the recorded
conversation with a third party (Chokshi, 2018). Another incident was
in November 2018 when Alexa sent 1,700 recordings to a complete
stranger (McCarthy, 2018). These incidents have demonstrated a
point; Alexa is capable of intruding on the user’s right to privacy.
Reports have suggested that the number of complaints lodged against
Amazon relating to the mischievous behaviour of Alexa is on the
rise (Photong, 2017). Alexa is like a problematic child, plunging
Amazon in hot water.

State v Loomis 881 N.W.2d 749 (Wis. 2016) 754 (US).

1

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Loss or Damage as the Result of AI’s Decision

The second justification for regulation on AI is premised on a legal

scheme where the liability is distributed on the tortfeasor to mitigate
the damage and losses caused to others. The scholarship of articles
approach this issue by suggesting that the time is apt for AI to be
recognised as a subject of law and capable to bear its own legal
liability. This line of suggestion is hinged on the revolutionised
capability of AI which can function independently without having to
rely on human interference. In some circumstances, this capability
may entail disruptive effect if left unchecked (Manyika et al., 2013).
Ever cheaper, faster, and more sophisticated AI systems are now
able to do the work of people in a wide variety of fields and on
an unprecedented scale (Abbott, 2018). As AI is becoming more
ubiquitous and sophisticated, the question on how to mitigate the
harm caused by AI is becoming more pertinent (Wagner, 2018).
This article would be remiss for not mentioning some of the obvious
harm caused by AI.

On 7 May 2016, Joshua Brown was killed in a crash while using

the semi-autonomous driving system on his Tesla Model S. Brown
was operating the car using the advanced driver assistance features
Traffic-Aware Cruise Control and Auto steer lane keeping assistance
(National Transportation Safety Board, 2016). The car struck
and passed beneath a 2014 Freightliner Cascadia truck-tractor
in combination with a 53-foot semitrailer killing Joshua Brown
instantly (National Transportation Safety Board, 2016). On 19 March
2018, Elaine Herzberg, a 49-year-old pedestrian was killed by a self-
driving car (Volvo XC90), operated by Uber while she was crossing
at an intersection in San Francisco (Wakabayashi, 2018). Four days
later, another incident occurred in Mountain View California where
a Tesla Model X had crashed into a concrete divider on 23 March
2018 killing its driver, Walter Huang (“Tesla car,” 2018).

REGULATING NORMS

Considering the amount of AI threats, past incidents, legal

deadlocks, the time is now ripe and justified for AI to be regulated.
AI regulation will be able to address the emerging problems relating

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to AI. However, the desire to regulate AI is not just a complex terrain

but it is uncharted territory for an age that is transferring human
roles to machines that is capable of learning, automation, robotic
manufacturing and deep learning (Spencer, 2019).

Generally there are three methods employed by regulators in drafting

any regulation. The first method is legalistic (Petit, 2017). The
legalistic approach starts from the legal system, and proceeded by
drawing from lists of existing legal fields or issues affected by AIs
and robots: liability, safety, privacy and cyber security (Leroux et
al., 2012). Over reliance on the legalistic approach may undermine
the necessary development of novel legal fields in the context of
emerging technologies (Petit, 2017).

The second approach is the technological approach. The technological

approach is more ontological which consists of an assessment of
what the technology is all about and whether the technology displays
human features (Petit, 2017). Thus the discussion is mostly directed
to a reflection of oneself, and what makes us human. The point here
is to envision legal issues from the bottom-up standpoint of each
class of technological application: driverless cars, social robots and
exoskeletons (Palmerini et al., 2016).

The third approach is regulatory capture. This approach however, is

quite controversial and preferably to be abstained from becoming the
foundation of any AI regulation. The idea of regulatory capture was
comprehensively described by George Stigler in his seminal work on
the Theory of Economic Regulation published in 1971. Regulatory
capture can be described as the situation where the government’s
policy is steered by politicians and bureaucrats who would also
pursue their own private goals such as prestige and wealth, and are
prone to encounter the conflict of interests between their private goal
and their public function (Boehm, 2007). Although Stigler never
used the word ‘regulatory capture’ in his work, but it is common to
see researchers citing his work for the past 40 years in the discussion
on, ‘regulatory capture’ (Carrigan & Coglianese, 2016). Take for
example, taxi drivers have requested additional protection from the
competition of ride-sharing apps like Uber, and the hospitality sector
has sought to steer municipalities across the world to undermine
the operations of services like AirBnB or platforms like Booking.

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com and Expedia (Petit, 2017). In this respect, a government which

decides to adopt the technological approach to regulate AI will
likely be exposed to rent-seeking scenarios by stakeholders from
the technology community. Perhaps, the alternative method to
avoid regulatory capture is by way of policy hacking which will be
discussed next.

The uniqueness of AI demands for a different approach in framing

regulations. The three methods mentioned cannot be exclusive. A
mixed-methodology is to be devised so that the AI regulations can
be sufficiently flexible in adapting to the dynamic changes of AI
technology. In this respect, a combination between the legalistic
and technological approach can be a workable formula in drafting
a regulation on AI. This formula can be used as the main catalyst
towards the idea of proposing a two-tier regulation approach which
is chosen to be the central theme of this article.

THE TWO-TIER REGULATION APPROACH

The regulating norms discussed above may not be able to deal with
the emerging threats of AI. Therefore, the adoption of the two-tier
regulation approach is appealing. This is an approach which requires
the regulation on AI to be made by way of two levels. The first level
or the first tier specifically refers to the promulgation of hard law by
the Parliament i.e. a specific Act on AI. Whereas the second level
or the second tier, refers to delegated legislations or policies passed
by a specific ministry(s) of the government. Both levels will serve
different objectives and purposes in regulating AI. The following
discussion will not formulate a guideline or blueprint. Instead, it
intends to highlight the crucial elements that must be incorporated
in the legal provisions made by way of the two-tier approach.

The First-tier Regulation

The first tier shall serve as the primary piece of legislation to govern
only crucial matters on AI so that AI will not be left unchecked, will
not lose control and will be safe. The first-tier refers to a specific Act
of Parliament on AI. The intended specific Act on AI incorporates
the following fundamental elements:

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Definition of AI

Some may have pondered on why we need to plumb the abyss

in defining ‘What is AI?’ when humans can live with functional
understanding on some abstract notion. For instance, we may
understand what is ‘time’, ‘love’ and ‘happiness’ which are difficult
to be defined but easy to be functionally understood. Natural law
philosopher, Lon L. Fuller who pioneered the idea of ‘internal
morality law’ said that in order for any law to be valid, its subjects
must be able to understand the law (Tucker, 1965). Therefore, the
definition of AI is a crucial issue as it determines to what extent AI
will be regulated.

The difficulty in giving an acceptable definition to AI is not on the

concept of artificiality but on the concept of intelligence (Scherer,
2016). Alan Turing has devised a test that eliminates the need
to define intelligence in terms of what one does when one acts
intelligently (Stevens, 1985). Unfortunately, the definition offered
by Turing is only capable of proving that AI is able to mimic human
thinking but insufficient to deal with modern AI technology which
is now widely used by humans.

The term artificial intelligence was first coined in 1956 by John

McCarthy during the Dartmouth Sumer Project (Kaplan, 2016).
McCarthy defined AI based on intelligence (McCarthy, 2007).
However, this definition was found to be unhelpful (Buiten, 2019).
Some have called for the unpredictability of AI’s behaviour to be
the main feature in defining AI (Scherer, 2016). However, this
form of definition is unsustainable because computer programmes
will continue to develop. Moreover, what humans perceived as
unpredictable 10 years ago is considered to be nothing special
today (Buiten, 2019). The underlying problem with AI is that, as
soon as an AI technique works, it is no longer considered AI and
becomes a spin-off in its own field such as character recognition,
speech recognition, machine vision, robotics, data mining, medical
informatics and automated investing (Kurzweil, 2006).

Some have suggested that defining AI must be grounded on its

anthropomorphic character namely, the ability to: think humanly,
think rationally, act humanly and act rationally (Russel & Norvig,

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2010). The question now is whether giving definitions of AI based on

human traits is appropriate because the way humans think is totally
different from the way AI thinks. Turing test and other mimicry
metrics may be less relevant in today’s practical applications of AI.
The way humans think is different from AI because humans have
amygdala which stimulates future happenings and visual cortex that
transforms data from the eyes to images (Husain, 2017). AI works
under a different model. The AI machine works on silicon substrate
as compared to humans which rely on carbon substrate. This has
resulted in the intrinsic strengths of the machine mind such as speed,
limitless recall, and unconstrained energy consumption. The essence
of intelligence is the ability to make appropriate generalisation based
on limited data. Learning is one of generalisation processes which
take into consideration data of past experiences to aid future analyses
(Kaplan, 2016). The exponential development in AI technology
has now lured AI researchers to move into deep learning, which is
another sub-field of AI.

Alternatively, AI system should be allowed to define itself according

to the massive data available today. Any AI programme can be
designed to take up this task. This will put AI’s ability to the test by
resolving the simplest issue(s) which has left researchers grappling
for decades. Perhaps what was said by some AI researchers that the
word ‘AI’ is a name given to a technological process which we do
not understand bears some weight. Against this chequered landscape,
this article suggests to define AI as an autonomous entity that is able
to make its own judgement through an independent evaluation of
choices. This is reasonably sufficient to proffer a general description
about AI without having to contract the controversial word,
‘intelligence’ as part of the definition.

Certification Requirements

The certification process demands AI designers to produce full

documentation on the historical background of the AI programme
coupled with the ability to detect any misbehaviour of AI (Schirmer
et al., 2018). Certification process on AI is justified by law and will
encourage the demand for ethical use of AI (Ravid & Hallisey,
2018). Certified AI will ensure the reliability and trust on the AI
industry. This will stimulate further growth and development of AI

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technology (Ravid & Hallisey, 2018). AI programmes which are

not certified shall be legally presumed to be unsafe for commercial
and consumer use. It shall be an offence under this Act. With this
requirement the regulators can impose on AI designers to build AI
capable of observing moral principles. For instance, in the design of
AI voice assistant, it must be able to distinguish which part of the
conversation is to be considered as confidential and which part of
the conversation can be publicly shared.

Special Zone for AI

For certification under this Act, all AI intended for commercial and
consumer purposes must be placed in a special zone. Special zone is
a controlled area designated within real society. General regulations
on the use of AI are being applied in order to allow for the presence
of experimental AI which has proven to be safe in laboratories.
Special precautions are taken in order to prevent serious accidents
and undesired outcome (Santoni de Sio, 2016).

The special zone system or the AI kingdom is to observe the

coexistence between human society and AI. The special zone serves
as a shock buffer for supporting new human-AI ecology (Weng et al.,
2015). Some say that performing AI experiments with real people in
real cities is morally prohibited until the technology is proven to be
safe (Santoni de Sio, 2016). Therefore, the special zone will allow
regulators and manufacturers to identify foreseeable risks before it
is released into the real world. It allows for the assessment on how
far the system(s) may react in different contexts and to determine
whether robots and other AI agents are able to meet human needs
(Pagallo, 2018).

Special zones have been implemented in Japan for robot testing

known as Tokku (Pagallo, 2018). Tokku is a Special Zone for
Robotics Empirical Testing and Development (RT special zone)
which originated in Japan for more than a decade and has proved
to be effective in creating new ecology between humans and robots.
Tokku can be adopted as the benchmark for the setting up of a special
zone(s) so that fundamental issues relating to AI can be empirically
tested.

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In April 2019, a strategic collaboration was entered between local

Malaysian company with two Chinese companies to develop AI
park in Malaysia (Bernama, 2019). The AI park will be built in
Technology Park Malaysia covering 686 acres of land (Inn, 2019).
No doubt the AI park will provide exposure to Malaysians about
AI. But to what end? Will there be any transfer of technology which
Malaysians can benefit? So far responsible parties have remained
reticent about the details of the whole programme. It is unknown
whether the proposed AI park will embody the characteristics of the
AI special zone. If it does, the Malaysian government is allowing
China to perform its AI technology experiments on Malaysian soil
and offering Malaysians to become experimental subjects. The data
collected may enable China to further improve their AI technology.
giving China the biggest portion of the cake, especially when data is
becoming a new precious commodity of the present day.

Digital Peculium

The ability of AI to be independent from human influence in

decision-making, demands for a new form of liability scheme. In
this sense, AI ought to bear some responsibility under the law for its
decisions. The responsibility must also be coupled with the ability
to compensate any injured party in a situation where AI has gone
bad. But how can AI be able to compensate? Digital peculium can
be a promising option to be incorporated into the AI Act. Digital
peculium is a mixture between the new form of accountability for
the behaviour of AI and traditional ways of distributing risk through
insurance models or authentication systems. However, Digital
peculium is relevant if AI is unable to hold its own legal personality.
The legal personality of AI is outside the scope of this article.

The mechanism of peculium explained in the Digest of Justinian is

an old Roman mechanism which permitted slaves who were being
deprived of personhood to be held responsible for his/her own conduct
and to act as estate managers, bankers or merchants (Watson, 1988).
The peculium was the sum of money or property granted by the head
of the household to a slave or son-in-power. The master’s liability
was limited to the value of their slave’s peculium. This approach can
be adopted to resolve issues relating to compensation or to mitigate
losses caused by any AI system.

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If this mechanism is to be applied, a distinction has to be made about

the type of use of the AI system like what the Romans did for the
activities and status of the slaves (Pagallo, 2013). The adoption of this
concept will be able to bypass the legal discussion on the personhood
of AI in relation to liability in tort cases. The amount required to be
allocated for any particular activity will be determined by the Act.
Panoply of scholarships suggests that AI must be insured through
conventional insurance scheme in order to compensate the injured
party. What makes digital peculium different from conventional
insurance? Apart from the technicalities of the insurance policies,
the conventional insurance scheme can be an acceptable approach
to provide coverage for harm caused by AI. However, the owner and
the designers of AI can still be exposed to legal suit by the victim
(Pagallo, 2013). Further, high insurance premiums shall add to the
operating costs and will prove unattractive for businesses to employ
AI systems.

The Second-tier Regulation

The second-tier regulation refers to the soft laws comprising policies

and directives issued by the government. Soft laws are considered
to be a crucial tool to cushion the exponential development of AI
technology. What is considered to be cutting edge technology today
may be an outdated technology by, tomorrow. In reality, statutory
laws may take a long time to be passed by the Parliament. By the
time the law is passed, the problem may have been resolved or
become obsolete. Issues on AI demands prompt legal response in
order to satisfy industrial expectations. Therefore, soft laws are the
most suitable mechanism to deal with emerging issues on AI. The
most effective method to come up with soft laws is by way of policy
hacking and pitch.

Policy hacking or hack and pitch is a contemporary mantra which has

been found to be an effective remedy to cure technology problems
by devising innovative solutions. The purpose is to accommodate
the fluid changes and challenges that occur within the AI stream.
The policy hack converge innovation ecosystem representatives to
design solutions for a specific challenge that has been identified from
the policy standing or from the government’s perspective. Policy
hacking is an effective tool in preventing any regulatory capture but

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continues to encourage cooperation between the government and the

AI industry players. For instance, the UNESCO Mahatma Ghandi
Institute of Education for Peace and Sustainable Development
partnered with Dell technology for a first of a kind hackathon to
challenge teachers to come up with innovative solutions to solve
their classroom problems (“UNESCO,” 2019). Tesla has also adopted
policy hacking in its problem-solving method. Tesla CEO, Elon
Musk turned to intensive collaboration between programmers in a
hackathon to resolve its Tesla Model 3 production bottleneck due to
over reliance on the automation system (Korosec, 2018). Similarly,
Startup Europe Comes to Silicon Valley (SEC2SV) mission created
and organised by Mind the Bridge (MTB) as part of the Startup
Europe Partnership initiative and co-organised with EIT Digital
brought together a group of entrepreneurs, investors, and policy
experts from both sides of the Atlantic in the Bay Area (Mind the
Bridge, 2016). The success in policy hacking led MTB to organise a
policy hack for the Directorate-General for Research and Innovation
of European Commission on 27 February 2020. The challenge was
to find solutions to achieve climate-neutral and smart cities by 2030
using smart mobility solutions and smart construction solutions
(Mind the Bridge, 2020). Perhaps, it is apropos for policy hacking to
be extended in resolving AI issues especially for regulations on AI.

CONCLUSION

AI needs its own set of regulations because existing laws may not be
able to withstand the challenging legal issues on AI. Stretching the
application of conventional laws on AI issues will eventually break
at one point. Therefore, AI cannot continue to be left ungoverned
by any legal framework because nature abhors a vacuum. However,
formulating a feasible AI regulatory framework is more challenging
than advocating the rhetorical aspect of regulations. The classical
method in drafting regulations based on pure single legal theory is
found to be inappropriate in drafting a regulatory framework on AI.
Reason being, AI comes with a new set of potential risks which demand
proactive regulatory intervention. The kind of regulations intended
to be introduced must not only be agile to support the exponential
change in the development of AI technology but also, should not
constrain the future development of AI. The two-tier formulation

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in framing AI regulations is therefore necessary and convenient

to address current issues on AI. It is a combination between hard
law and soft law, where both perform different roles and functions.
The first tier will set out the law on the techniques of AI that is
to be regulated, the design, experiments, registration, and outlines
the liability scheme of AI. Meanwhile the second tier comprising
the soft laws, are to be used in dealing with matters which are
continuously changing. AI is also susceptible to exponential changes
and technological advancements especially those which operate on
machine learning techniques. Humans will not be able to foresee
the future behaviour of AI because of AI’s independence to learn
from data. AI’s unpredictability will inevitably cause new AI related
issues to emerge which demand swift response from the government.
These issues can be resolved expeditiously by employing the policy
hack and pitch method under the second-tier heading. However, AI
will always come with its own set of unpredictable peculiar issues
that will challenge the minds of regulators.

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