AI Policies – Why they are important

April 2025

James Hutchinson and Jonathan Booton

The use of artificial intelligence, and in particular large language models such as ChatGPT, has grown rapidly among the general public. This has resulted in people using those tools and apps in the workplace, often without their employer’s or IT department’s knowledge or permission. This may bring considerable benefits, but it also comes with risks.

Risks of AI

AI presents significant legal and ethical risks to businesses if not managed properly. AI tools trained on copyrighted material without permission could lead to intellectual property infringement claims. Mishandling personal data can result in breaches of data protection legislation. Employees using free generative AI tools could compromise confidential business information, especially when using third-party services without clear safeguards. AI models can hallucinate or unintentionally discriminate by relying on biased data, leading to unfair or unethical outcomes. Without clear policies in place, businesses risk penalties, reputational damage and loss of client trust.

Why are AI policies important?

Implementing an AI policy offers a range of benefits, including:

Legal and regulatory compliance. There is presently no overarching AI legislation in the UK (the much-discussed AI Bill has been delayed). The use of AI is therefore governed by existing laws and regulations on data protection, copyright, human rights and equality. Where AI tools process personal data, they fall within the scope of the UK General Data Protection Regulation. Businesses operating across Europe may also be caught by the EU AI Act. Having an AI policy helps align operations with evolving laws and avoid fines, investigations and legal action by setting clear standards for AI use. It also demonstrates to regulators, partners and clients that the business manages AI responsibly.
Data privacy and security. Businesses deploying AI that processes personal data must comply with the UK GDPR’s principles of fairness, transparency and accountability, and ensure decisions are explainable. An AI policy helps assess whether existing privacy policies need updating and ensures any AI development or deployment remains compliant.
Risk management. Clear internal guidelines minimise operational risks and prevent misuse of AI that could lead to errors, delays or safety issues. They also help avoid AI-driven decisions perceived as biased or unfair and set out how to respond to data breaches or AI failures.
Ethical and transparent decision-making. Policies encourage responsible AI development and deployment, clarify who is accountable for AI-generated decisions and explain how those decisions may be challenged or reviewed.
Enhanced client and stakeholder trust. Robust policies support tendering and bidding for work, demonstrating a commitment to ethical and responsible practices. Clients and stakeholders are more likely to engage with a business that uses AI transparently.
Operational visibility, efficiency and consistency. Policies allow businesses to identify where AI is used and where future use cases exist. They enforce a consistent approach so every deployment follows the same guidelines, and help employees understand which tools they may use and under what conditions, reducing confusion and risk.
Competitive advantage. Sound policies encourage staff to identify AI tools that can drive efficiencies and reduce costs while ensuring secure, responsible and ethical use. They also allow businesses to evidence ethical adoption to clients, an advantage competitors may lack.

Ultimately, an AI policy is not just about compliance. It provides visibility of how AI is developed and deployed, supports ethical use and strengthens stakeholder trust, all of which underpin long-term competitiveness.

Next steps

An AI policy should form part of the overall governance and AI strategy adopted by a business. Businesses allowing the use of AI tools in the workplace should:

Audit current use of AI tools.
Determine whether, and to what extent, employees may use AI tools.
Train employees on any restrictions or limitations.
Manage inputs and monitor outputs. Inputs and outputs should undergo rigorous review to avoid errors, copyright infringement or breaches of confidentiality that could damage reputation and stakeholder trust.
Understand the legal and ethical risks relevant to the business (these may vary between departments).
Apply a consistent and rigorous approach to onboarding AI suppliers.
Implement robust AI policies.
Update existing policies, such as data-protection, IT and communications, and codes of conduct, to address AI use.
Keep policies under review. AI is developing rapidly, so policies should be reviewed and updated regularly.

How we can help

To learn more about how we can help your business navigate AI governance, update existing policies and implement robust AI policies, please contact: