South Korea introduced on Thursday what it says is the world's first comprehensive set of laws regulating artificial intelligence, aiming to strengthen trust and safety in the sector, but startups fretted that compliance could hold them back.

Seoul is hoping that the new AI Basic Act will position the country as a leader in the field. It has taken effect in South Korea sooner than a comparable effort in Europe, where the EU AI Act is being applied in phases through 2027.

Global divisions remain over how to regulate AI, with the U.S. favouring a more light-touch approach to avoid stifling innovation. China has introduced some rules and proposed creating a body to coordinate global regulation.

One key feature of the laws is the requirement that companies must ensure there is human oversight in so-called "high-impact" AI which includes fields like nuclear safety, the production of drinking water, transport, healthcare and financial uses such as credit evaluation and loan screening.

Other rules stipulate that companies must give users advance notice about products or services using high-impact or generative AI, and provide clear labelling when AI-generated output is difficult to distinguish from reality.

The Ministry of Science and ICT has said the legal framework was designed to promote AI adoption while building a foundation of safety and trust.

The bill was prepared after extensive consultation and companies will be given a grace period of at least a year before authorities begin imposing administrative fines for infractions.

The penalties can be hefty. A failure to label generative AI, for example, could leave a company facing a fine of up to 30 million won ($20,400).

The law will provide a "critical institutional foundation" for South Korea's ambition to become a top-three global AI powerhouse, Science minister Bae Kyung-hoon, a former head of AI research at electronics giant LG, told a press conference.

But Lim Jung-wook, co-head of South Korea's Startup Alliance, said many founders were frustrated that key details remain unsettled.

"There's a bit of resentment — why do we have to be the first to do this?" he said.

Jeong Joo-yeon, a senior researcher at the group, said the law's language was so vague that companies may default to the safest approach to avoid regulatory risk.

The ministry has said it plans a guidance platform and dedicated support centre for companies during the grace period.

"Additionally, we will continue to review measures to minimise the burden on industry," a spokesperson said, adding that authorities were looking at extending the grace period if domestic and overseas industry conditions warranted such a measure.

($1 = 1,468.7500 won)

-Kyu-seok Shim/Reuters