- within Technology, Strategy and Antitrust/Competition Law topic(s)
- in United States
- with readers working within the Insurance industries
As artificial intelligence technologies continue to rapidly evolve, so too do the associated risk exposures. 'AI washing' – the practice of companies overstating or misrepresenting their AI capabilities or prospects – has emerged as a significant concern for UK directors and officers.
Understanding the risk
AI washing can take various forms, including stating that a company is using AI when it is not; overemphasising AI features, misrepresenting capabilities, or making unsubstantiated claims.
Whilst AI washing can be intentional, it can also occur inadvertently when companies adopt AI terminology and buzzwords without fully understanding the underlying technology.
UK regulatory landscape
Directors and officers face mounting regulatory scrutiny across multiple fronts:
- The Advertising Standards Authority has published guidance warning that companies should not make misleading claims about AI and has already upheld complaints regarding exaggerated AI capabilities.
- The Competition & Markets Authority now has robust new powers under the Digital Markets, Competition and Consumers Act 2024 to directly enforce consumer protection laws, with misleading consumers through AI washing potentially leading to substantial fines for both the company (up to 10% of global turnover) and individuals involved (up to £300,000).
- For regulated firms, the Financial Conduct Authority requires that information communicated to clients must be fair, clear, and not misleading, with extensive investigatory and enforcement powers applicable to regulated entities and individuals.
Call to action for directors and officers
To avoid inadvertent misstatements, companies and their directors should be clear about the language they are using, explain what they mean by technical terms, and avoid making broad claims about AI without further explanation. Directors should ensure that claims can be substantiated and keep a record of supporting evidence.
Company boards should regularly review public-facing statements and consider implementing company-wide policies and training, which specifically address the making of assertions about AI. Directors and officers should also actively consider AI-related risks when reviewing their D&O policy wordings, to ensure exposures such as AI washing are covered.
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.
