Governance, Risk & Compliance: GRC
AI Poses Major Business Risks. Here’s How to Safeguard Your Tomorrow.
Artificial intelligence (AI) is transforming industries worldwide. But with its rapid integration into business operations comes significant risks. While AI brings efficiency and innovation, it also introduces challenges that could expose companies to legal, ethical, and security pitfalls.
Businesses must not ignore these risks. In honor of cybersecurity awareness month this October, we ask business leaders and their teams to reflect on why a proactive approach to AI is important. A key reason? Failing to address AI-driven risks today can result in reputational damage, legal penalties, and operational failures tomorrow, and beyond.
What are Some Key Data Privacy and Security Risks Worth Knowing?
One of the most significant threats AI poses is the potential for breaches involving personal data and confidential information. AI systems—particularly generative AI models like ChatGPT—retain and reuse information provided by users. This raises critical issues when these tools are used to handle confidential business information.
For example, companies feeding proprietary data into AI systems could inadvertently expose trade secrets or sensitive client information. The AI might reuse this data in future outputs, creating severe privacy violations.
AI? It’s not infallible. Errors (aka AI hallucinations) from AI models can lead to inaccurate outputs. These errors could mislead decision-making or even expose companies to legal challenges if they rely on incorrect information. The risks are compounded when businesses fail to implement strict controls on AI usage, leaving gaps in both legal compliance and cybersecurity.
What Business Risks Might AI Pose for Your Organization?
Just a few common AI risks for businesses, according to SAI360, include:
- Media Manipulation: AI can be used for creating deepfakes and spreading misinformation
- Intellectual Property Vulnerability: AI may expose proprietary information to espionage or data leaks
- Bias in Decision-Making: AI can perpetuate selection, stereotyping, and cultural biases, leading to unfair outcomes
- Hallucinations: AI can generate incorrect or misleading responses, posing risks to decision-making
- Misinformation: Outdated or false data within AI systems can compromise the integrity of disseminated information
- Lack of Human Oversight: Over-reliance on AI without human intervention may lead to errors, inaccuracies, and compliance risks
What Does the Current Legal and Ethical Landscape Around AI Look Like?
The current regulatory landscape around AI is inconsistent. For example, while the EU has established guidelines through its AI Act, the legislation leaves much up to organizations to determine what constitutes high-risk use cases.
Did you know? The EU AI Act, effective in August of 2024, is a comprehensive regulatory framework that classifies AI systems into low, limited, high-risk and unacceptable risk categories, each with distinct compliance requirements. High-risk systems, like those used in biometrics and medical devices, must undergo rigorous assessments, while non-compliance can result in fines of up to seven percent of global turnover.
Many companies— especially those in early adoption stages—struggle to assess whether their AI systems fall into these high-risk categories.
This ambiguity puts businesses in a precarious position. Without clear-cut global guidelines, organizations must self-regulate. Doing so increases the likelihood of gaps in governance. Industries such as notary services, where the verification of identities and authenticity of signatures is critical, are particularly vulnerable. There’s growing concern that AI-generated signatures or fraudulent identifications could compromise the integrity of these operations.
What’s next? Companies must decide at what point additional validation is necessary and ensure they have robust internal policies for AI use and staff training.
Why is There an Urgent Need for AI Governance?
Businesses cannot afford to wait for comprehensive, global AI regulations. The pressure from stakeholders—including clients, regulators, and investors—to adopt AI responsibly is growing. Failing to implement AI governance frameworks can result in lost trust and significant financial loss.
Did you know? McKinsey research indicates companies with strong digital trust grow faster, with some achieving annual growth rates exceeding 10%. Yet, many organizations still lack the measures necessary to build this trust when using AI technologies.
The legal ramifications of using AI without proper governance are also substantial. ChatGPT and other AI tools can infringe on intellectual property rights and data protection laws, creating liability for companies.
As the UK Information Commissioner John Edwards recently emphasized, businesses must remain “authentic” in their AI use, meaning they must ensure that AI aligns with their values and legal obligations, or customers will take their business elsewhere.
“Merriam-Webster’s word of the year for 2023 was revealed a couple of weeks ago. It’s ‘authentic’. In the age of AI, deepfakes and ChatGPT, it’s an interesting choice.” — John Edwards,TechUK Digital Ethics Summit 2023 via ico.org
Your Three-Step Blueprint for AI Risk Management: Assess Risk, Establish Policies, Be Transparent
To mitigate risks, companies need a comprehensive approach to AI governance. This starts with conducting a thorough risk assessment before implementing AI technologies. By identifying potential vulnerabilities and assessing compliance with legal and ethical standards, businesses can build a solid foundation for AI integration.
Next, organizations should establish clear AI policies that guide their use of these technologies. These policies must cover data privacy, security, and confidentiality, ensuring all AI usage aligns with both legal standards and the company’s values. Businesses must also ensure staff receive ongoing training on AI usage to minimize risks and keep up with technological developments.
Transparency is another crucial component. Companies should include statements on AI use in their terms of business and privacy notices, ensuring clients understand how their data is handled. By being upfront about AI applications, businesses can build trust with stakeholders while maintaining accountability.
Final Thoughts
In short, AI presents immense opportunities for growth and innovation, but businesses must take proactive steps to manage the inherent risks. Through comprehensive risk assessments, robust policies, continuous training, and transparency, companies can embrace AI’s potential while safeguarding against its pitfalls.
Robert Bond, BA, CCEP, CITP, FSALS, CompBCS | Industry Commissioner, Data & Marketing Commission | Senior Counsel & Notary Public, The Privacy Partnership Limited
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Sources
https://www.mckinsey.com/capabilities/quantumblack/our-insights/why-digital-trust-truly-matters
https://www.sai360.com/resources/grc/what-to-know-about-the-eu-ai-act-effective-august-2024-blog
