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Navigating AI in financial services: Why lawyers are essential partners

Legal
Elliott Kaye our consultant managing the role
Author: Elliott Kaye
Artificial Intelligence (AI) is creating a seismic shift in the Financial Services industry. From automating customer service and personalising financial advice to advancing compliance processes, AI is streamlining operations and revolutionising how financial institutions interact with clients. But as with any transformative technology, AI comes with its share of challenges. For financial institutions leveraging AI, the role of legal professionals is not just beneficial, it is essential.

AI’s Expanding Role in Financial Services

AI has already proven its value in Financial Services by automating routine tasks, evaluating risks, and enhancing customer experience. For example:
  • Customer Engagement: AI-powered chatbots and virtual assistants deliver personalised advice and support based on individual customer data.
  •  Risk Management: Algorithms analyse real-time data to detect fraudulent activities and assess creditworthiness with precision.
  • Compliance: AI simplifies adherence to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, reducing the risk of penalties.

However, these advancements rely on AI processing vast amounts of sensitive customer data and using complex algorithms to make high-stakes decisions. 

This creates not only significant business opportunities but also legal and ethical concerns requiring careful oversight.

Why Legal expertise is Important 

Financial institutions adopting AI must engage legal professionals to address the unique regulatory, moral, and operational challenges this technology presents. These challenges span several critical areas:

1. Ensuring Compliance with evolving regulations

Regulations governing data protection and AI are becoming increasingly complex. The European Union’s General Data Protection Regulation (GDPR) highlights stringent requirements for handling customer data, and upcoming legislation, such as the proposed AI Act, will only add to this web of regulations.

  • Advising on existing and future regulatory requirements.
  • Ensuring AI systems comply with global and regional standards to avoid legal penalties.
  • Developing frameworks for the ethical use of customer data within AI applications.

2. Safeguarding Intellectual Property (IP)

The innovation driving AI often involves proprietary algorithms, data models, and software. Protecting these intellectual assets is critical for maintaining a competitive edge. Legal experts ensure that companies maintain full ownership of their AI developments while navigating risks such as:

  • Patent disputes over algorithmic processes.
  •  Misuse or replication of data models.
  • Licensing complexities during software integrations.

By securing the IP associated with AI systems, financial institutions can confidently invest in further innovation without the fear of losing their competitive advantage.

 3. Overseeing AI errors and biases

Despite their advanced capabilities, AI systems are not infallible. Errors in decision-making, such as miscalculating credit scores or recommending unsuitable loan packages, can have significant financial and reputational consequences. Additionally, biases embedded in AI algorithms present a growing concern, especially when these systems unknowingly discriminate based on gender, race, or socioeconomic status.

Lawyers play a crucial role in:

  • Identifying and addressing biases in AI systems.
  • Mitigating risks by overseeing the correction of AI errors in key documentation and decision-making processes.
  • Representing organisations in disputes involving AI-related inaccuracies or discriminatory outcomes.

4. Navigating data Privacy and Security

AI’s reliance on sensitive customer data for decision-making raises pressing concerns about data privacy and cybersecurity.  Lawyers ensure that institutions comply with data protection standards while mitigating risks related to breaches and unauthorised access. 

A key focus is balancing innovation with consumer trust by establishing robust policies around:

  • Transparent data collection and usage.
  • Secure storage and processing of customer information.
  • Immediate response protocols for data breaches.

Building a Responsible, Compliant, and Innovative Future

Lawyers not only help organisations remain compliant and avoid legal pitfalls, but they also foster trust among stakeholders by guiding the ethical deployment of AI. Together, Financial Services institutions and legal professionals can create a solid foundation for sustainable, responsible innovation.

Having an in-house legal expert as part of your AI strategy is no longer optional, it's imperative. Legal oversight provides the assurance that your institution is navigating the complexities of AI in a way that aligns with regulatory demands, protects against unforeseen risks, and maintains a competitive edge.

How Marks Sattin can help you

Financial Services companies using AI must recognise the long-term significance of integrating legal expertise into their operations, with over 30 years of experience, we at Marks Sattin have helped several organisations find their next legal professional. 

Visit our dedicated legal page to discover how we can support your hiring needs. Alternatively, submit a brief here and we will call you to discuss your needs.

14/03/25

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