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Artificial Intelligence (AI), and particularly generative AI, is rapidly transforming the Canadian business landscape. From automating routine tasks to enabling advanced analytics and customer engagement, AI offers unprecedented opportunities for innovation and growth. Yet, with these opportunities come significant risks, including legal, ethical, reputational, and operational risks. The key to harnessing AI safely and responsibly lies in robust AI governance. AI governance is no longer optional; it's a business imperative. By proactively establishing robust governance frameworks, Canadian businesses can unlock the benefits of AI while safeguarding against legal, ethical, and reputational risks. The landscape will continue to evolve, and organizations that prioritize AI governance will be best positioned to thrive in the age of AI.
The Evolving AI Legal Landscape
Canada's legal framework for AI is in flux. The federal government's proposed Artificial Intelligence and Data Act (AIDA), which aimed to introduce risk-based requirements for AI systems, was shelved in early 2025 due to Parliament's prorogation. But while there is no standalone federal AI law yet, businesses are not operating in a vacuum. Existing laws, including privacy, human rights, intellectual property, and competition laws, already apply to AI systems. Provinces like Québec and Ontario have enacted or proposed additional rules, such as mandatory disclosure when AI is used in hiring or decision-making.
In the absence of binding federal regulation, voluntary codes and sector-specific guidelines are filling the gap. The federal government's Voluntary Code of Conduct on the Responsible Development and Management of Advanced Generative AI Systems and the Office of the Superintendent of Financial Institutions' Model Risk Management Guideline (final Guideline published September 11, 2025), encourage principles of fairness, safety, transparency, and human oversight.
Why AI Governance Matters
Here are three reasons why AI governance matters for Canadian businesses:
Risk Management & Legal Compliance. AI systems can introduce new risks to a business, including bias, privacy breaches, Intellectual Property (IP) infringement, and even liability for harm caused by automated decisions. Without proper governance, businesses might inadvertently violate existing laws or expose themselves to lawsuits and regulatory penalties. For example, the use of AI in hiring which results in biased outcomes can trigger human rights complaints, and improper handling of personal information can lead to privacy investigations and class action lawsuits. AI governance provides a framework that allows businesses to identify, assess, and mitigate these risks. It helps to ensure organizations have clear policies, procedures and oversight mechanisms to comply with legal obligations and industry standards.
Reputation & Trust. A single high-profile misuse of AI, such as a chatbot providing inaccurate advice, can erode trust with customers, investors, and the public. Transparent governance, including clear communication about how AI is used and how decisions are made, helps build confidence and protect reputation.
Operational Efficiency & Innovation. AI governance isn't just about risk avoidance; it's about enabling responsible innovation. By establishing guardrails, businesses can confidently deploy AI tools to enhance productivity, automate processes, and drive growth, knowing that risks are managed and compliance is maintained.
Key Elements of Effective AI Governance
In thinking about how to implement effective AI governance within your business, consider the following four key elements:
The Right Team. AI governance requires multidisciplinary collaboration. IT, cybersecurity, HR, legal, compliance, communications, and business leadership must all be involved. Designating a person dedicated to the role of Chief AI Officer can help ensure accountability.
Policies & Guidelines. Develop clear, practical policies for AI acquisition, use and oversight. These should address:
- Authorized uses of AI.
- Legal and regulatory compliance.
- Data privacy and protection.
- Data use.
- Intellectual Property rights.
- Human oversight.
- Explainability and transparency.
- Vendor risk assessment.
- Incident management.
- Ongoing compliance and training/education.
Communication. It's important that everyone in your organization understand how and why AI tools are being used, and who to contact to report any issues or concerns. Be sure to establish regular channels for internal and external communication to ensure transparent reporting and feedback loops.
Training & Education. Ongoing training relating to AI use is essential. Everyone in your organization needs to understand AI risks, responsible use and organizational policies. Top-to-bottom awareness ensures AI governance is embedded in daily operations.
Practical Steps for Business Owners
Take these four practical steps to develop your AI governance framework, ensuring it covers legal, ethical and operational risks:
Assess Your Current AI Use. Inventory all AI tools and systems in use, including unofficial ones (for example, employees using ChatGPT).
Engage Stakeholders. Involve all relevant departments in policy development and oversight.
Monitor & Review. Regularly audit AI systems/tools for compliance, effectiveness, and emerging risks.
Stay Informed. Track legal developments, voluntary codes and best practices in Canada and internationally.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
