Artificial intelligence (AI) is ingrained deeply within business strategies today, but with its integration come significant risks and regulatory challenges. According to Gartner, executives must adapt to the changing AI risk management and regulatory environment to safeguard their organizations. The company predicts 2025 will be particularly transformative, as chief audit executives (CAEs) face heightened pressure to provide adequate risk assurance to boards amid growing scrutiny over AI systems.
Margaret Moore Porter, Distinguished VP and Chief of Research at Gartner, asserts, "2025 brings more high-profile risks and opportunities driving growing board focus on risk management." The emphasis on systemic governance issues and substantial risks, particularly with AI, requires CAEs to effectively communicate these challenges to audit committees, maximizing limited presentation time and focusing on impactful insights.
AI presents unique risks manifesting through behavioral, transparency, and security concerns. Behavioral risks involve algorithm and system inaccuracies, which may result in biased outcomes or failure to meet regulatory expectations. Transparency risks relate to the clarity of AI operations and the explanation of its functions, whereas security risks encompass vulnerabilities linked to data leaks or misuse of sensitive information. While many audit leaders acknowledge the importance of addressing these AI risks, fewer than 25% feel confident managing this urgency.
To bolster assurance over complex AI risks, experts recommend collaboration with legal, compliance, and risk teams. An active inventory of AI applications and the implementation of technical controls to safeguard data are considered fundamental steps. Continuous monitoring and governance support compliance and effectiveness in risk management strategies.
Investors, too, are keeping a watchful eye on AI developments, particularly as they carve niches within the sector. The emergence of retrieval-augmented generation (RAG) technology, allowing AI systems real-time access to external databases, is reshaping scalability and cost efficiency within industries such as finance and healthcare. RAG reduces reliance on costly model updates, favoring systems capable of adjusting dynamically to current demands.
Similarly, composable AI, which capitalizes on modular components, facilitates the quick adaptation of solutions to service specific needs. This growing trend supports investors seeking companies providing affordable and flexible solutions without extensive technical expertise, unlocking new revenue streams.
With the industry acknowledging the limitations of generalized AI, domain-specific applications are gaining traction. Investors are urged to favor businesses specializing in targeted applications over broad, one-size-fits-all solutions. This shift addresses specific operational demands, frequently resulting in greater user engagement and satisfaction.
AI's role is not merely about replacing human effort but enhancing it—an ethos symbolized by the rise of collaborative intelligence. By combining AI's capabilities with human oversight, companies can build trust and efficacy within various sectors. Investors are asking whether organizations develop harmoniously with human users, fostering systems where AI augments decision-making rather than usurps it.
Efforts to manage risks associated with AI adoption are increasingly significant. Legal and regulatory frameworks surrounding AI are developing continuously, spearheaded by federal and state initiatives across various jurisdictions. Regulations like the EU's AI Act and the Colorado AI Act propose frameworks for shared accountability between developers and deployers of AI. FairNow's Guru Sethupathy notes, "While these laws and regulations are enforceable, companies also need to be aware of the voluntary standards for responsible AI development." These standards promote best practices to cultivate safety and transparency.
Looking to the future, Sethupathy forecasts shifts in AI regulation, emphasizing the potential weakening of federal guardrails amid political transition. The local level may increasingly take charge of protecting consumers from bias and regulatory shortcomings. Proactive legislation at the municipal level is likely to fill the gaps left by federal efforts and embed AI requirements across established industry standards.
AI-specific requirements are expected to become common within existing frameworks. The Equal Employment Opportunity Commission (EEOC) and similar bodies are already clarifying regulations concerning AI's application to mitigate biases, ensuring users take responsibility for ethical recruitment practices. Healthcare, too, is under scrutiny as the FDA mandates compliance for AI-driven diagnostic tools, emphasizing the integration of AI governance practices.
Despite the need for coherent regulatory frameworks, fragmentation poses risks. Different standards and guidelines across borders compromise ethical integration opportunities, leading to regulatory inconsistencies for companies operating internationally. The urgency for cross-border collaboration among AI communities is evident, particularly when tackling biases inherent within automated recruitment practices.
Research across different regions highlights varying focuses on AI ethics, with the US, EU, and China adopting unique models and strategies. The need for shared values and infrastructure is pressing, as differing approaches could create barriers to ethical AI, stymying innovation and raising human rights concerns.
Given these complexity layers, collaborative efforts are imperative. The urgency for multilateral cooperation is underscored by UNESCO's recent recommendation, uniting countries toward responsible AI practices, reiteratively improving public trust and standards.
The future of AI risk management requires adaptability, specialization, and continuous improvement, positioning companies at the forefront of innovation and regulatory compliance. While the market evolves rapidly, companies investing early and strategically may find themselves wielding significant advantages.