Regulatory & Legal Risk
What is Regulatory & Legal Risk?
Regulatory and Legal Risk is the danger that your AI systems will violate laws, regulations, and/or legal obligations either because the rules are unclear, rapidly changing, or not followed correctly.
This includes:
- Breaking AI-specific laws like the EU AI Act
- Violating existing laws that now apply to AI (e.g., FTC, GLBA, SEC, FCC guidance, etc.)
- Failing to meet transparency, audit, and/or documentation requirements
- Using AI in ways regulators consider unsafe or deceptive
- Deploying AI without proper legal review and/or governance controls
Dinsmore notes that moving too quickly with AI "without adequate planning" creates legal pitfalls as frameworks evolve.
Congressional analysis confirms that AI regulation is fragmented and rapidly developing across jurisdictions.
What does Regulatory & Legal Risk Do?
Regulatory and Legal Risk shows up when:
- AI systems make decisions that violate anti-discrimination laws
- AI outputs contain hallucinated or fabricated legal citations (already seen in many court cases)
- AI is used in hiring without required bias audits (e.g., NYC Local Law 144)
- Data used for AI violates privacy laws (e.g., GDPR, state privacy laws)
- AI systems are deployed without required transparency or documentation (e.g. EU AI Act)
- Agentic or autonomous AI systems act independently in ways regulators consider unsafe
Thomson Reuters highlights that global AI laws are expanding quickly resulting in high-risk systems facing strict compliance requirements and prohibitions.
Why it Matters for Executives?
Regulatory and Legal Risk can lead to:
- Fines up to 7% of global revenue for example under the EU AI Act
- Lawsuits, injunctions, and enforcement actions
- Mandatory shutdown of AI systems
- Loss of licenses or regulatory approvals
- Public investigations and/or reputational damage
- Inability to defend AI decisions in court
- Delays in product launches or enterprise AI adoption
AIQLabs notes that 63% of leaders lack an AI compliance roadmap, thus exposing them to major legal risk.
Transparency Disclosure
All images and videos on this site were AI generated and/or are Getty licensed images that may have been AI generated. AI was also used to edit the content descriptions.
