Building on my previous observations regarding the UK Government’s failure to introduce adequate legislative safeguards for artificial intelligence (AI), I wish to explore practical measures businesses can take to mitigate the risks associated with AI use by their suppliers.
AI is rapidly transforming industries, driving efficiencies, innovation, and competitive advantages. However, in the absence of comprehensive UK legislation governing AI, businesses are exposed to considerable risks. Without clear regulatory frameworks, suppliers using AI may not be held accountable for poor practices, which can lead to data breaches, biased decision-making, reputational harm, and compliance failures.
Companies engaging with AI-powered suppliers must take a proactive approach to managing risks, ensuring that AI usage aligns with ethical and legal standards. Below, I outline key strategies for businesses to safeguard themselves in the evolving AI landscape.
1. Conduct Thorough AI Due Diligence on Suppliers
Prior to entering agreements with suppliers using AI-driven solutions, businesses should undertake comprehensive due diligence, including:
- Technology Assessment – Understanding the AI models, data sources, and methodologies used by suppliers to evaluate their effectiveness and risks.
- Ethical Compliance – Ensuring suppliers adhere to recognised ethical AI standards, such as transparency, fairness, accountability, and non-discrimination.
- Regulatory Adherence – Verifying that suppliers follow existing UK data protection laws, including the UK GDPR and other applicable regulations.
- Security Protocols – Reviewing the supplier’s track record on data protection, cybersecurity, and risk mitigation strategies.
- Reputation and Reliability – Assessing supplier history, previous compliance issues, and client feedback to determine their credibility and reliability.
2. Implement Contractual AI Safeguards
Contracts form a crucial safeguard for businesses engaging with AI-powered suppliers. Specific contractual provisions should include:
- Transparency Obligations – Suppliers should be required to disclose details about AI models used, data processing methods, and potential risks.
- Data Protection and Security – Suppliers must implement clear data handling protocols, encryption standards, and security measures to ensure compliance with UK GDPR regulations.
- Fairness and Bias Prevention – Mandating that AI-driven decision-making processes are regularly tested for biases, inaccuracies, or discriminatory outcomes.
- Audit and Compliance Clauses – Establishing the right to conduct regular audits to ensure that AI models remain compliant with ethical and legal standards.
- Liability and Indemnification – Clearly defining liability for AI-related failures, ensuring suppliers bear responsibility for data leaks, biased decisions, intellectual property infringements, or algorithmic malfunctions.
3. Establish AI Risk Monitoring and Auditing
Ongoing oversight is essential to ensure suppliers maintain compliance with AI-related risk management requirements. Businesses should:
- Regularly Audit Supplier AI Models – Assess AI models for accuracy, fairness, bias mitigation, and security vulnerabilities.
- Monitor AI Outputs Continuously – Implement mechanisms to track AI-generated outputs for risks such as misinformation, biased outcomes, or unauthorised data usage.
- Track Algorithmic Changes – Suppliers should be required to notify businesses of significant updates or modifications to AI models that may impact performance and compliance.
- Enforce Non-Compliance Penalties – Contracts should include clauses that allow for financial penalties, termination of agreements, or remedial actions if suppliers fail to meet compliance obligations.
3. Develop an AI Incident Response Plan
AI-related failures, whether due to supplier negligence or unforeseen system issues, require a structured response plan. Businesses should implement a comprehensive AI incident response strategy, including:
- Risk Identification and Containment – Establishing protocols to detect and isolate AI-related issues before they escalate.
- Legal and Regulatory Compliance Measures – Ensure compliance with UK laws when handling any incident, such as data breaches or algorithmic errors.
- Remediation and Corrective Actions – Developing response procedures to rectify AI failures, implement corrective actions, and prevent recurrence.
- Crisis Communication and Reputation Management – Preparing a communications strategy to mitigate reputational damage and maintain trust with clients and stakeholders.
- Coordination with Authorities – Having processes in place for reporting incidents to regulatory bodies where required.
5. Educate Employees on AI Risks and Governance
A well-informed workforce is key to mitigating AI-related supplier risks. Businesses should invest in training and awareness initiatives, including:
- AI Ethics and Compliance Training – Educating employees on responsible AI usage, ethical risks, and regulatory considerations.
- Identifying AI-Related Risks in Supplier Engagements – Training employees to assess and identify AI-related vulnerabilities in supplier relationships.
- Data Security Best Practices – Providing guidance on data handling, privacy safeguards, and secure AI deployment to prevent potential breaches.
- Internal Reporting Mechanisms – Establishing clear channels for employees to report AI-related concerns, ensuring issues are addressed promptly.
6. Align with Global AI Governance Standards
Given the lack of immediate UK regulation, businesses should take the initiative to align with international best practices to future-proof their AI strategies. Recommended actions include:
- Adopting AI Governance Frameworks – Implementing guidelines from global institutions such as the OECD, EU AI Act, and ISO AI Standards.
- Engaging with Industry and Regulatory Bodies – Participating in discussions on AI governance, advocating for responsible AI policies, and staying informed on evolving legislation.
- Preparing for Future UK Legislation – Implementing ethical AI principles that align with anticipated UK regulatory frameworks, ensuring readiness for forthcoming legal developments.
My Opinion
The UK’s delayed progress in AI regulation presents significant challenges for businesses relying on AI-driven suppliers. Without clear legal protections, companies face increased risks from unethical and non-compliant supplier practices. By proactively implementing robust AI policies, businesses can mitigate financial, legal, and reputational risks while promoting ethical AI adoption. Investing in AI governance today will not only protect business operations but also ensure long-term resilience as AI regulations continue to evolve.
Ensure Your Business is Protected Against AI-Related Supplier Risks
AI technology is evolving rapidly, and without clear UK legislation, businesses must take proactive measures to mitigate supplier risks. At 360 Business Law, we provide expert legal support to help you safeguard your operations through:
- Comprehensive AI Supplier Due Diligence
- Robust Contractual Protections
- AI Compliance Audits and Risk Monitoring
- Custom AI Incident Response Plans
- Employee Training on AI Governance and Ethics
Let us help you future-proof your business against AI-related legal and reputational risks. Contact us today to discuss tailored legal solutions for AI governance and employee training.