Use of generative AI and other forms of machine learning have exploded in organizations throughout the world. With little sign AI growth will slow, Razzak Jallow of FloQast argues that companies failing to put compliance front and center risk putting the cart before the horse.
While integrating AI can drive innovation and efficiency, ensuring robust compliance measures is equally crucial for sustained success. The stakes for AI compliance are high. For example, policymakers are responding with initiatives like the European Union’s Artificial Intelligence Act to establish comprehensive regulatory frameworks. Penalties under this act can be severe, up to approximately $32 million or 6% of annual worldwide turnover, whichever is higher.
However, it is important to understand that effective compliance teams are vital to AI’s success. As organizations traverse the evolving landscape of AI regulations, prioritizing compliance not only safeguards against legal pitfalls but also fosters sustainable AI integration. Balancing innovation with compliance ensures that organizations adopt AI swiftly and sustainably, aligning with evolving regulatory standards.
AI compliance programs are designed to ensure that AI programs follow all relevant laws, rules and regulations while aiming to improve operational effectiveness and productivity. These laws and regulations include, among others, ensuring that all data used to train AI systems is obtained legally and ethically to prevent the theft of personal information and invasion of privacy.
There is a wealth of personal information on the internet, generative AI tools developed with data taken from the internet may memorize personal information. Concerns about protecting personal privacy have risen, especially with AI’s increased involvement with financial software.
Building out an effective compliance program
The first thing an organization should do to improve its compliance program is establish a strategic blueprint. Without a plan, an organization risks running its compliance program inefficiently, resulting in higher costs and potentially adverse legal outcomes due to overlooked areas.
The most successful strategic blueprints outline the process for optimizing organizational agility and demonstrate how compliance supports the broader missions and goals of the organization’s AI capabilities. Employees must know that compliance is more than checking a box; it requires a constant effort a strategic blueprint can help accomplish. The success of an AI program depends on a team of capable and knowledgeable individuals who assess whether an organization has the resources, funds and capacity to operate AI safely and efficiently.
A solid foundation is essential for developing a strong compliance team that ensures everyone understands the objectives and aligns on the path forward. According to a survey from Accenture, 4% of executives from leading global companies answered that they have a cross-functional team in place to handle AI compliance.
In addition to a competent cross-functional team, organizations should develop governance and risk management frameworks for AI. Both frameworks play distinct roles in keeping AI programs compliant. The governance framework acts like a rulebook created to keep AI in check, ensuring the system follows strict compliance requirements. While a risk management framework focuses on mistakes an AI could make, such as biases in data and security vulnerabilities, the governance framework ensures the AI behaves legally and ethically.
According to Accenture, 69% of organizations have some governance or risk management framework in place but do not have a robust foundation capable of adjusting to the ever-changing regulations surrounding AI.
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Precise and flexible compliance programs are becoming increasingly important. They are vital for safeguarding companies, streamlining processes and setting employees up for success. They have also proven lucrative; the cost of noncompliance is 2.71 times more expensive than that of compliance.
Effective AI compliance mitigates legal risks and enhances operational strength. By ensuring that AI programs adhere to ethical standards and legal frameworks, organizations build the trust of customers and stakeholders alike. This trust is crucial for safeguarding brand reputation and preserving customer loyalty in an increasingly competitive market. Additionally, robust AI compliance practices enable organizations to quickly adapt to new regulations, fostering a culture of innovation without compromising integrity. Investing in technologies focused on monitoring and auditing AI activities solidifies an organization’s commitment to ethical AI practices, paving the way for sustained success.
Organizations must take proactive steps to prepare for future AI compliance. Failing to anticipate the complexity of future AI regulations can lead to serious consequences. Success can be found by prioritizing a strong commitment to compliance, building a capable team to maintain that commitment, and investing in adapting to the evolving compliance landscape.
Razzak Jallow is FloQast's chief financial officer. Prior to joining FloQast, he served as a vice president at Looker, which was acquired by Google. Throughout his career, Razzak has developed a broad experience across financial planning and analysis, accounting, tax and treasury, sales and investor operations in both public and private companies, including Google, Apple and Adobe. 
