Summary Under the proposed Cloud and AI Development Act (CADA), a "cloud computing service provider" is a legal entity that provides a cloud computing service (Article 2(2)). The underlying "cloud computing service" is defined by reference to the NIS2 Directive and covers on-demand, broad remote access to a scalable, elastic pool of shareable computing resources - including on-demand access to remotely hosted and operated AI systems. If your organisation is a legal entity offering such services to Union entities or public sector bodies, you would fall within CADA's sovereignty framework, including its recognition procedures, Union assurance levels, and potential penalties for non-compliance.

Detail

To see who falls in scope, start with the definitions in Title I, Article 2 of the proposal, which build up hierarchically.

First, Article 2(1) defines a "cloud computing service" by reference to Article 6, point (30), of Directive (EU) 2022/2555 (the NIS2 Directive): a digital service enabling on-demand administration and broad remote access to a scalable and elastic pool of shareable computing resources, including where distributed across several locations. Recital 10 clarifies that this encompasses on-demand access to AI systems (as defined in Article 3, point (1), of the AI Act) that are hosted and operated remotely. Crucially, only the delivery and making available of an AI system forms part of the service; the AI system itself and its underlying model are excluded from this definition.

Second, Article 2(2) defines the provider:

"'cloud computing service provider' means a legal entity which provides a cloud computing service;"

So the provider must be a legal entity. A natural person acting in a purely personal, non-professional capacity would not be a provider under this definition.

Who counts and who does not

  • Who counts: Any legal entity - established in the Union or in a third country - that provides cloud computing services. This can include large hyperscalers, niche providers, and entities offering hosted AI services where they meet the on-demand and broad-remote-access criteria of the NIS2 definition.
  • Who does not count:
    • Natural persons providing services in a personal, non-professional capacity.
    • Providers of AI that is not hosted/operated remotely or does not offer on-demand access to computing resources (for example, a standalone on-premise software licence).
    • The AI system or underlying model itself, as distinct from the cloud service through which it is delivered (Recital 10).

Basis for recognition

A provider that aims to offer services to Union entities or public sector bodies at a given Union assurance level would seek recognition under the Union cloud computing sovereignty framework in Title IV, Chapter I.

  • Recognition mechanism: Under Article 17, the provider applies for recognition to the national competent authority of establishment, with all required evidence.
  • Assurance levels: The provider must demonstrate compliance with one of four Union assurance levels (1 to 4), per Annex II.
    • Level 1: a conformity self-assessment and an EU statement of conformity (Article 19). For SME providers, that statement is directly and automatically recognised across Member States without prior recognition by the evaluating authority (Article 17(3)).
    • Levels 2-4: independent third-party audits and a "positive" audit opinion (Article 20).
  • Recognition decision: Following the assessment and a review period for other Member States' authorities, a positive outcome results in recognition across the Union. Recognised services are listed in a central repository maintained by the Commission (Article 22).

Penalties and compensation

Non-compliance carries risk. Article 24 addresses penalties and compensation:

  1. Member State penalties: Member States would lay down rules on penalties for infringements of the sovereignty-framework chapter by providers within their competence; these must be effective, proportionate, and dissuasive. Criteria for imposing them include the nature, gravity, scale, and duration of the infringement.
  2. Compensation: As proposed, the framework also addresses compensation for damage resulting from infringements of obligations under the chapter.

What this means for you

If you operate as a cloud computing service provider, especially targeting public-sector clients or Union entities, you would face a new layer of sovereignty- and security-focused compliance.

  1. Audit readiness: For Union assurance levels 2-4, prepare for rigorous independent audits covering your software supply chain, data localisation, and (for higher levels) personnel citizenship and the absence of third-country control.
  2. Legal-entity clarity: Structure your service provision through a clear legal entity; ambiguity about who the "provider" is could delay recognition.
  3. Documentation: Maintain detailed records of infrastructure location, data flows, and subcontractor arrangements. Annex III sets out the required audit evidence, including SBOMs and evidence on data residency and control.
  4. Contractual review: Review public-sector contracts. Under Article 30, non-public-order activities would require services recognised at Union assurance level 1, and public-order activities would require levels 2, 3, or 4 - so without recognition you may be excluded from these markets.

Common misconceptions

  • "CADA only applies to EU-based companies." Incorrect. The Article 2(2) definition does not limit providers to those established in the EU. However, third-country providers face stricter criteria - notably on third-country control and data-access risks (see Article 18 and Annex II) - and EU establishment is itself a criterion for Union assurance level 1 and above.
  • "If I provide AI, I am only subject to the AI Act." Incorrect. If your AI is delivered as a cloud computing service (on-demand, remote access), you would be a "cloud computing service provider" under CADA. CADA addresses sovereignty and procurement; the AI Act addresses product safety and fundamental rights. They are complementary.
  • "Self-certification is enough for all public-sector contracts." Incorrect. Self-assessment suffices only for Union assurance level 1. Public-order activities would require levels 2, 3, or 4, which mandate independent audits and stricter controls.

Official sources

Related

This is general information about a draft EU regulation, not legal advice.