Regulatory Risks in Using AI in Legal Practice: What Law Firms Need to Know
AI tools like ChatGPT and Microsoft 365 Copilot are starting to pop up everywhere helping lawyers draft quicker, research faster, and even summarise meetings on the fly. But as useful as they are, they come with risks. And in a regulated environment like legal practice, risks aren’t just theoretical they can quickly turn into compliance headaches if they’re not handled properly.
As lawyers, we don’t get to shrug off regulatory responsibilities just because we find technology useful. So, before your firm starts relying on AI for everything from legal research to drafting, let’s take a realistic look at the key regulatory risks and what you can do to stay on the right side of the SRA, ICO and your professional obligations.
Over the next few paragraphs, I’ll explore:
Confidentiality concerns
Over-reliance on AI
SRA expectations
Policy gaps you might not know you have
1. Confidentiality and Data Privacy: The Big One
This is probably the most obvious—and most serious—risk. Legal work is built on confidentiality. If someone in your firm pastes a client’s details into a tool like ChatGPT or another free AI assistant, you might be unintentionally sharing confidential information with a third party.
Key questions to ask:
Do we know where the data goes when we use AI tools?
Are we certain it’s not being stored or used to train the tool?
What to do:
Stick to enterprise-grade tools like Microsoft Copilot, which has clearer data handling safeguards.
Make it policy that no personal or case-sensitive data is entered into AI tools unless the tool is approved and secure.
Update your data protection policy and consider a Data Protection Impact Assessment (DPIA) if the tool touches client data and if you havent got a DPIA, now is the time to do one.
Tip: Most AI tools when prompted will delete the data inputted into it, therefore ensure you prompt the AI to delete the data or to not retain the data after use.
2. Accuracy and "AI Hallucinations"
Anyone who’s tested ChatGPT knows it can sometimes produce very convincing nonsense. AI is great at writing fluently, but it doesn't always get the law right and worse, it might fabricate cases or misquote legislation. The most famous one being the case of Mata v Avianca Inc in 2023 that happened to our friends across the pond - see the CNN article here: Lawyer apologizes for fake court citations from ChatGPT | CNN Business
The danger? Relying on AI output without checking it could lead to poor advice, incorrect filings, or even a negligence claim.
How to manage it:
Treat AI like a helpful assistant it can assist, but a qualified human must review everything.
Build a clear internal process for checking and approving any AI-generated output before it’s used externally.
Train your team on AI’s limits so they don’t take its answers at face value.
3. Professional Conduct and Oversight
The SRA has made it clear: just because you’re using AI doesn’t mean your obligations go away. You still have to supervise staff, maintain client care standards, and use your own independent judgment.
The key questions you need to ask:
Are your staff using AI without oversight?
Are you using AI to prepare and draft documents?
Are clients being told that AI has contributed to documents, drafting or advice?
Watch out for:
Junior team members relying too heavily on AI.
Clients being confused about who’s doing the work—are they getting advice from a lawyer, or an algorithm?
What to do:
Be transparent with clients about how AI is being used, especially if it influences how their case is handled.
Make sure AI isn’t used in place of legal advice only to support it.
Because AI is in its infancy, refrain from using it to draft court documents for example pleadings.
Train staff on when and how AI can be used and monitor it.
Include AI use in your supervision framework and training materials.
Being innovative is fine and provides a competitive advantage, but its important you remain responsible.
4. Third-Party Tools Means Third-Party Risks
AI tools are often built and hosted by third parties, which means you’re putting your firm’s compliance in someone else’s hands. That’s risky if you don’t know exactly how the tool works or what its terms allow.
Questions to consider:
Where is the data being processed?
Can the provider access or reuse the data?
Is there a proper contract in place?
How to stay safe:
Do your due diligence on any AI models and their developers.
Make sure you’ve got proper contractual protections especially around data, up-time, and liability.
Keep a register of which tools are being used, by whom, and for what purpose.
5. Missing Policies Means Hidden Risks
A lot of firms are starting to use AI without ever formally acknowledging it in their policies or risk assessments. That’s a problem—not just from a regulatory point of view, but from a consistency and accountability standpoint.
Why it matters:
Inconsistent use can create quality and compliance gaps.
Staff may not realise what’s acceptable vs. risky AI use.
You won’t be able to defend your practices if challenged by the SRA.
What to do:
Create an AI usage policy covering what tools are approved, how they should (and shouldn’t) be used, and who’s responsible for oversight.
Train your team on the policy—and document the training.
Revisit your risk register and compliance framework to include AI use.
Final Thoughts: Use AI—Just Use It Wisely
AI has real potential to improve efficiency and reduce burnout in legal practice. But it’s not a silver bullet, and it’s definitely not a replacement for careful legal thinking. The SRA isn’t anti-tech—but it is pro-accountability.
If your firm is using (or thinking about using) AI tools, it’s time to:
Think about how you protect confidentiality
Make sure your team understands the limits of AI
Update your policies to reflect modern ways of working
Technology is moving fast but that doesn’t mean compliance should fall behind.
Your firms reputation depends on it, don't go into using AI blindly, monitor and supervise!
Need help developing an AI usage policy or reviewing your compliance framework? Get in touch—we can help make sure you’re future-ready without crossing any regulatory lines.