How to Ensure AI Compliance in the Legal Industry

Artificial Intelligence is changing the legal industry, powering tools that significantly enhance compliance efforts. AI can automate tasks such as contract analysis and regulatory monitoring, allowing legal professionals to reduce the effort required for human oversight when reviewing compliance measures.

Using AI’s capabilities can help lawyers ensure contracts meet expectations in specific industries and jurisdictions. Learn how to help clients stay legally compliant using a state-of-the-art AI tool like Spellbook.

What is AI Compliance?

AI compliance refers to the processes and practices businesses implement to adhere to laws, regulations, and internal policies governing the use of AI systems. Companies develop compliance frameworks that help ensure AI models and algorithms are deployed responsibly.

Regulations require legal professionals to use AI responsibly and to align with industry standards and societal benefits. Beyond these legal requirements, AI compliance fosters trust with stakeholders by ensuring transparency, accountability, and ethical decision-making.  For lawyers, AI compliance goes beyond ethical considerations to ensure that contracts include the required compliance language and protections. 

Spellbook automates contract compliance checks by leveraging AI-driven contract review features to ensure legal documents align with relevant regulations and industry standards. It flags clauses that may pose legal risks, highlights potential gaps in regulatory requirements, and helps legal professionals ensure their contracts align with standards like GDPR and CCPA. 

Key Regulations for AI Systems

Different industries and jurisdictions fall under various  AI regulations. Regulations may be designed to protect intellectual property and ensure transparency in international trade. Here are several examples:

The General Data Protection Regulation (GDPR)

The GDPR  regulates how data is collected, processed, and stored. The principle of data minimization in GDPR tells companies to collect only the data that is necessary and relevant for the intended purpose. For example, an AI-powered marketing tool requires only a recipient’s name and email address to send promotional emails.

Companies would not need to collect additional personal details such as birth dates or home addresses for that purpose. Similarly, AI tools used in legal workflows should process only the client or party data necessary for drafting, reviewing, or analyzing legal contracts and related documents.

Companies regulated by the GDPR must maintain a record of their data processing activities and only use special category data (such as racial or ethnic origin, political opinions, religious beliefs, health information, or biometric data) with explicit consent or for a necessity, such as scientific or historical research. 

The GDPR underscores using data anonymously to safeguard personal information. Non-compliance is incredibly costly, with companies facing fines of up to €20 million or 4% of their annual turnover, whichever is higher.

California Consumer Privacy Act (CCPA)

The CCPA applies to for-profit businesses that do business in California and meet any of the following criteria:

• annual gross revenue exceeding $25 million, 
• annually buy, sell, receive, or share the personal information of 100,000 or more consumers, or 
• derive at least 50% of annual revenue from selling personal data. 

The CCPA requires businesses to implement privacy safeguards and maintain transparency by: 

• providing pre-use notices to consumers,
• offering opt-out options for the sale or sharing of personal data, and 
• disclosing the purposes for which consumer data is used.

In short, the CCPA grants consumers rights over AI-processed personal data, and businesses must take steps to uphold those rights. 

The EU AI Act

The Artificial Intelligence Act of the European Union governs the use and development of AI systems. It is considered the first global comprehensive regulatory framework for AI. It prohibits specific practices, such as:

• Social scoring systems that evaluate individuals based on their behaviors
• Emotion recognition systems in work and educational settings
• Biometric identification systems that identify individuals based on sensitive characteristics
• Exploitation of an individual’s vulnerabilities (for example, age or disability)

Industry-Specific Regulations

In addition to the GDPR, CCPA, and EU AI Act, businesses must often adhere to industry-specific regulations. For example, users of AI applications and software in the medical field must comply with Health Insurance Portability and Accountability Act (HIPAA) requirements. Similarly, financial institutions must review and adhere to policies set by the Financial Industry Regulatory Authority (FINRA).

Common AI Compliance Mistakes

As AI becomes integral to legal workflows, understanding potential compliance pitfalls is important. While tools such as Spellbook can dramatically improve efficiency, improper implementation can create significant compliance risks. Below are common AI compliance mistakes and why they matter:

• Lack of Regular Audits – Regulations aren't static, nor should your AI compliance efforts be. Without periodic audits, you risk relying on outdated information and processes that no longer meet the most recent standards. Compliance is like maintaining a high-performance vehicle. It needs consistent check-ups and expert oversight to perform at its best.
• Bias in AI Models – AI systems are only as neutral as their training data. An AI model with limited or skewed information can produce unfair or discriminatory outputs. Spellbook addresses this through its extensive training on legal documents on top of its general-purpose AI datasets, which helps minimize biases that might arise from non-legal sources.
• Poor Data Retention Policies – Regulations such as GDPR and CCPA have strict data retention requirements. AI tools that store client information indefinitely can trigger serious privacy violations. Your AI solution must integrate rigorous data governance policies that automatically align with regulatory standards.
• Over-Reliance on AI Decisions – As AI tools become more advanced, there is a risk that legal professionals may place too much trust in automated recommendations without proper scrutiny. This can lead to overlooked nuances, misinterpretations, or compliance risks, especially in complex legal matters where human expertise is essential.

AI is a powerful assistant, not a replacement for legal judgment. While Spellbook provides data-driven recommendations, final decisions must always be reviewed by legal professionals. Think of AI as a sophisticated research tool that offers insights but leaves critical judgment calls to experienced lawyers.

By understanding these challenges, organizations can transform compliance from a potential minefield into a competitive advantage.

4 Steps to Ensure AI Compliance with Applicable Laws & Regulations

Ensuring compliance with applicable laws and regulations is achievable in just a few steps. Here’s how you can help clients stay up to date with regulatory compliance:

Step 1: Assess Contract Compliance and Risk

A non-compliant contract can expose businesses to legal and financial risks. Law firms should conduct thorough risk assessments to ensure contracts align with regulations such as GDPR and CCPA. 

Spellbook can automatically review compliance with GDPR, CCPA, PIPEDA, and other regulations, flagging potential compliance risks in contract language and identifying clauses that may require revision to meet regulatory standards. Users can also create or use predefined playbooks that automatically check contracts against a set of legal rules. For example, a playbook for NDAs might require a non-compete clause and flag contracts missing that provision. Playbooks can be customized for specific jurisdictions, industries, or organizational policies, allowing for consistent compliance enforcement​​.

Step 2: Audit AI Output and Data Use

Companies must regularly audit data usage and AI output to ensure fairness, security, and compliance with legal requirements. This includes evaluating AI systems for bias, discriminatory outcomes, and adherence to regulatory guidelines. 

Spellbook promotes audit transparency by allowing legal professionals to review, refine, and configure contract review and analysis, ensuring that AI-assisted drafting aligns with compliance best practices. Legal professionals may also analyze AI output and work with vendors to understand how AI systems recommend changes to contracts and whether those changes meet legal standards.

Step 3: Implement Ethical AI Practices

The methods for implementing ethical AI practices include bias mitigation and human oversight. To avoid compliance issues with AI tools, lawyers should always personally validate AI-produced output and insights for accuracy and biases. 

Step 4: Maintain Transparent Documentation

Lawyers must often explain their decision-making processes clearly, especially in high-stakes legal situations. Because Spellbook integrates with Microsoft Word, you can easily access document version histories to pinpoint comments regarding significant changes in your documents. When reviewing contracts, Spellbook provides redline summaries, highlighting key compliance-related changes and missing elements​​.

3 Best AI Compliance Tools

A compliant AI tool protects data privacy, documents compliance processes, and helps lawyers adhere to their clients’ company policies. Here are three of the top compliance tools available today:

Spellbook

Spellbook is an AI tool that drafts and edits legal contracts. It compares contracts against established industry benchmarks and regulatory requirements, ensuring contract language meets or exceeds compliance expectations. If a contract is missing critical legal protections, Spellbook suggests legally sound clauses tailored to the contract type​​.

It also automates tedious aspects of contract review to reduce human error. In addition to its built-in automated compliance measures, law firms and legal teams can upload their own compliance checklists, which Spellbook then integrates into its automated review system​​. A few highlights that set Spellbook apart:

• It reduces the risk of missing key clauses or compliance obligations while drafting, reviewing, and redlining contracts.
• It integrates with Microsoft Word for uninterrupted legal workflows.
• It allows law firms to create compliance rules tailored to their needs.

Compliance.ai

Compliance.ai applies purpose-built machine-learning models to monitor regulatory changes that may be relevant to a specific industry. It verifies system integrity and integrates compliance checkpoints by mapping changes to your internal policies and controls. 

Centraleyes

Centraleyes helps companies manage cyber risks by analyzing data using over 70 pre-loaded frameworks. It also simplifies data-collection capabilities, closes gaps to help users monitor their information, and has a real-time dashboard that offers a unified look into compliance operations.

Key Takeaways

• AI compliance is more than just avoiding fines. It’s also about protecting client trust and staying ahead of regulations.
• Regulations such as GDPR, CCPA, and the EU AI Act are evolving. Keeping up now saves legal teams headaches later.
• Spellbook helps you stay compliant while streamlining your contract work. It’s like a compliance expert automatically checking your work against current regulations and industry standards.

Frequently Asked Questions

What Happens if an AI System is Not Legally Compliant?

Non-compliant AI systems can cause data privacy, governance, and financial issues for organizations using them. These issues negatively impact consumer trust and can potentially lead to lawsuits over discriminatory or biased AI-based decisions.

Can AI Compliance Tools Ensure 100% Adherence to Laws and Regulations?

While AI compliance tools can significantly reduce the risk of non-adherence, they can’t guarantee 100% compliance. AI can help flag violations and suggest corrective actions, but ultimately, lawyers must address context-specific issues directly.

How Often Should AI Systems be Audited for Compliance?

AI systems should be audited for compliance regularly, though the exact frequency will depend on your business needs. As a general guideline, most businesses perform audits quarterly or biannually. Some professionals perform audits after significant updates, such as algorithm changes or new regulations that may affect the system.