Immediate action is essential for regulatory readiness and innovation in legal, accounting, and advisory practices.
As regulatory frameworks for AI and data governance evolve rapidly, professional service firms, including law firms, accountancy practices, and consultancies face increasing pressure to demonstrate robust, future ready governance. In sectors where regulatory compliance, client trust, and professional reputation are critical, establishing resilient governance structures is no longer optional, it’s a strategic necessity.
By acting now, firms can reduce compliance risks, strengthen their position as trusted advisers, and confidently embrace AI-driven innovation while meeting ethical and regulatory obligations.
Why Proactive Governance Matters for Professional Service Firms
For legal advisors, accountants, and advisers, the consequences of regulatory noncompliance go beyond financial penalties – they can damage client relationships and professional standing. A proactive governance framework enables firms to:
- Anticipate and mitigate compliance risks, including those specific to legal and accounting practices.
- Demonstrate accountability and transparency to clients, partners, and regulators.
- Build and maintain trust with clients and professional bodies.
- Adopt AI and data-driven technologies responsibly, turning compliance into a competitive advantage.
Hidden Risk – Shadow AI in Professional Service Firms
One of the most pressing challenges is the rise of shadow AI, the unsanctioned use of AI tools and applications by employees without formal approval or oversight. While these tools may seem harmless or even helpful, they pose significant risks:
- Data breaches: Unapproved AI tools can expose sensitive client data to third parties, violating confidentiality and UK GDPR requirements.
- Client confidentiality concerns: AI platforms often require large datasets for processing. Without strict controls, sensitive client information could be exposed to third-party providers or stored in unsecured environments.
- Reputational damage: If clients discover that their data has been processed using unapproved technology, trust and credibility can be severely compromised.
- Regulatory non-compliance: Shadow AI often bypasses established governance processes, creating gaps in accountability and audit trails.
- Bias and fairness: AI systems can inadvertently perpetuate bias in decision-making, risking discrimination and reputational harm.
- Overlooking sustainability considerations: such as the high energy consumption of AI systems, lack of vendor transparency on environmental practices, and failure to align with ESG commitments can lead to reputational harm, missed client expectations, and increased scrutiny from regulators and stakeholders.
To mitigate these risks, firms should implement clear AI usage policies, monitor technology adoption, and educate staff on the importance of compliance and ethical AI practices.
Building an AI & Data Council: A Strategic Imperative
To manage emerging obligations and ethical challenges effectively, firms should establish a dedicated AI & Data Council. This governance body ensures that legal, ethical, and regulatory considerations are embedded in all technology initiatives.
Key Features of an Effective AI & Data Council:
- Appoint an AI & Data Lead: A senior partner or director responsible for compliance across AI use, data protection, confidentiality, and professional ethics.
- Define terms of reference: A clear mandate outlining scope, authority, and alignment with professional standards.
- Create a multidisciplinary panel: Include experts from legal, IT, data protection, compliance, and client service teams.
- Implement assurance mechanisms: Policies and controls to monitor compliance, manage risks, and respond to regulatory changes.
How Stephens Scown Can Help Your Firm
Navigating the complex regulatory landscape requires expertise. Stephens Scown offers tailored support for AI governance and data compliance:
- Governance Training: Custom workshops on AI principles, risk management, and regulatory expectations (ICO and professional bodies).
- External Chair for AI & Data Council: Independent oversight to ensure impartiality and best practice.
- Programme Support: AI readiness packages, governance framework development, and hands-on implementation.
Whether you need a full governance overhaul or targeted advice, our solutions align with your professional obligations, client expectations, and regulatory requirements. We also have the added experience of establishing and running our own internal AI and data council.
By acting now, professional services firms can:
- Prepare for regulatory change and avoid last-minute compliance challenges.
- Mitigate the risks of shadow AI.
- Safeguard reputation and client trust.
- Lead in responsible innovation.
- Unlock opportunities in AI and data technologies.
The regulatory environment for AI and data is becoming increasingly complex. Establishing robust governance structures, such as an AI & Data Council — is both a strategic imperative and a vital investment in your firm’s success.
For more information please get in touch with our Intellectual Property, Data Protection and Technology team.