Do You Need an AI policy?
Yes, every organisation that uses or plans to use AI needs a clear policy. It’s the foundation for using AI responsibly, protecting against risk, and enabling innovation with confidence, transparency, and trust.
Why Is AI a Strategic Legal Risk for Your Business?
AI adoption is no longer just a technology decision; it’s a strategic legal risk that businesses must take seriously. As AI systems become embedded in core business functions like hiring, pricing, marketing, customer service, and compliance, they increasingly shape the legal and regulatory exposure of an organisation.
The decisions made by AI, whether filtering CVs, approving financial applications, or generating customer insights, carry real legal consequences, especially where transparency, fairness, or data privacy is involved.
Without proactive legal oversight and AI governance, companies risk reputational damage, enforcement action, or costly legal claims.
What Is the Purpose of the AI Policy?
The purpose of an AI policy is to establish a clear, consistent framework for how an organisation develops, implements, and explains AI-assisted decisions. It ensures that the use of AI aligns with organisational values, data protection requirements, and accountability standards.
By setting out clear rules, responsibilities, and processes, an AI policy helps maintain transparency and trust, both internally among employees and externally with individuals affected by AI-driven outcomes. Basically, it turns abstract ethical principles into practical actions, ensuring AI systems are used responsibly and explainably.
AI policies and procedures are also essential for embedding a culture of explainability, making sure that when AI systems make or assist in decisions, people understand how and why those decisions occur.
Whether through new dedicated policies or by updating existing ones, organisations should document how AI is used, how decisions are explained to individuals, and who is accountable at each stage.
Ultimately, a well-designed AI policy protects both individuals and organisations. It promotes consistency, fairness, and compliance, especially in high-impact or sensitive applications. The level of detail should match the level of risk. The more significant the potential impact of an AI system, the more robust the policies and procedures should be. Even when AI tools are sourced externally, responsibility for explainability remains with the organisation using them. In short, AI policies create the structure and clarity needed to use AI with confidence, accountability, and transparency.
What Does a Good AI Policy Look Like?
A strong organisational AI policy acts as both a strategic guide and a practical framework for how AI is developed, procured, and deployed. It ensures that every AI initiative aligns with the organisation’s values, complies with legal and ethical standards, and manages risk responsibly. While each policy should be tailored to fit an organisation’s unique structure and goals, there are core components that form the foundation of any effective AI policy.
A good policy starts with clarity of purpose, outlining the scope, goals, and intended impact of AI use and moves into concrete processes and accountability structures. It should be detailed enough to prevent ambiguity, but flexible enough to apply across various systems and use cases. It also needs to bridge strategy and operations, setting the tone from leadership while guiding the day-to-day decisions of employees and developers who interact with AI.
Here are key elements every AI policy should include, according to European Commission guidance:
Scope, Aim, and Objectives: Define who the policy applies to, what systems or projects it covers, and the overarching goals of AI adoption within the organisation.
Clear Definitions: Establish consistent terminology for AI systems, data use, and decision-making processes, ideally referencing recognised standards (e.g. OECD, NIST).
Alignment with Organisational Values: Explain how AI supports the company’s mission, values, and risk appetite, ensuring ethical consistency across all operations.
Governance and Accountability: Assign clear responsibilities for leadership, compliance, and oversight, including designated AI leads, committees, or approval pathways.
Ethical Principles: Include guiding values such as fairness, transparency, human oversight, and accountability, adapted to the organisation’s specific context.
System Classification and Risk Management: Define permitted, restricted, and prohibited AI applications, based on risk level and intended use.
Operational Obligations: Set out practical requirements for documentation, incident reporting, data handling, and impact assessment.
Integration with Other Policies: Link the AI policy with existing frameworks such as data protection, cybersecurity, and governance policies.
General Provisions: Clarify procedures for exceptions, non-compliance, and who to contact for guidance or reporting concerns.
Ultimately, a good AI policy provides transparency, consistency, and accountability. It ensures that AI is implemented thoughtfully, with clear rules that protect individuals and empower innovation in a responsible, structured way.
Why Is It Important to Have an AI Policy?
Having an AI policy is vital for any business that wants to harness the power of artificial intelligence responsibly and effectively. It provides structure and clarity around how AI should be used, setting boundaries between acceptable and unacceptable practices.
More than just a safeguard, an AI policy helps organisations build trust, manage risk, and ensure compliance with ethical and legal standards. It’s a proactive way to prevent misuse or unintended harm, while making sure that innovation happens within a safe and transparent framework.
But a good AI policy is not only about defence, it’s a catalyst for innovation. By giving employees clear guidance on how to use AI tools responsibly allows them to safely experiment and create with confidence. It helps identify the right technological solutions, such as when to use secure or on-premise systems, and ensures that new AI applications align with the company’s values and goals.
Beyond internal benefits, having a clear policy also strengthens a company’s reputation. It signals to clients, investors, and talent that the organisation takes AI governance seriously and is committed to using technology ethically and transparently. In a market where AI maturity is becoming a marker of leadership, an AI policy positions a business as forward-thinking, trustworthy, and ready for the future.
What Are the Risks of Not Having an AI Policy?
Not having an AI policy exposes organisations to a wide range of ethical, legal, and operational risks. Without clear governance, there’s no consistent framework to ensure that AI systems are used responsibly, which can quickly lead to unintended harm. Ethical issues such as bias, discrimination, or unfair decision-making become far more likely when no one is accountable for reviewing or testing AI outputs. This not only damages reputation but can also reinforce existing social inequalities and lead to public backlash.
A lack of policy also creates serious data protection and privacy risks. Since AI relies heavily on large volumes of data, the absence of defined rules around storage, processing, and consent increases the chance of data breaches and misuse of personal information. Without guidelines on transparency, organisations may also struggle to explain how AI decisions are made, undermining trust among clients, regulators, and employees.
Inconsistency is another major issue, when different teams or departments develop AI independently, standards and practices can vary widely. This lack of coordination makes it difficult to maintain quality, ensure interoperability, or comply with emerging regulatory requirements. Over time, it can create a fragmented system with no clear oversight or accountability.
Ultimately, the absence of an AI policy limits both trust and innovation. Without clear rules, employees may be unsure how to use AI tools safely, while leadership has no mechanism to monitor or correct misuse. It also weakens public confidence, as stakeholders grow wary of AI being deployed without transparency or ethical safeguards. In short, failing to establish an AI policy doesn’t just increase risk, it undermines the organisation’s ability to innovate responsibly and remain competitive.
How Can Gerrish Legal Help?
Gerrish Legal is a dynamic digital law firm. We pride ourselves on giving high-quality and expert legal advice to our valued clients. We specialise in many aspects of digital law such as GDPR, data privacy, digital and technology law, commercial law, and intellectual property.
We give companies the support they need to successfully and confidently run their businesses whilst complying with legal regulations without the burdens of keeping up with ever-changing digital requirements.
We are here to help you, get in contact with us today for more information.