UK businesses are being urged to tighten controls around their use of artificial intelligence in 2026, as legal experts warn that poorly governed AI systems are exposing companies to mounting legal, financial and reputational risks.
From unclear ownership of AI-generated content to data protection breaches and misleading outputs, advisers say many organisations have adopted AI tools faster than they have put safeguards in place, leaving them vulnerable as regulation accelerates.
Copyright and ownership disputes remain unresolved
One of the most pressing risks for businesses using generative AI is uncertainty around copyright and ownership of AI-generated outputs. Legal experts warn that AI tools can unintentionally reproduce copyrighted material, creating disputes over who owns, or is liable for, the content produced.
A high-profile example is the case of Getty Images versus Stability AI, which highlighted the legal grey areas surrounding AI training data. Getty alleged that its copyrighted images had been used without permission to train an image-generation model. While Getty’s main UK copyright claim did not succeed, the court found limited trademark infringement linked to early outputs that reproduced Getty watermarks, underlining the legal uncertainty businesses still face.
Lawyers say companies should carefully review the licensing terms of any AI tools they use, implement internal review processes to check outputs for potential infringement, and clearly define ownership rights in contracts. Commercial use of AI-generated content is particularly risky where training data sources are opaque.
AI ‘hallucinations’ pose serious business risks
Accuracy remains another major concern. Studies suggest that around 20 per cent of AI-generated outputs contain significant errors, including fabricated or outdated information. When relied upon for legal, financial or operational decisions, these so-called “hallucinations” can expose businesses to misrepresentation claims, regulatory penalties and reputational damage.
In March 2024, a chatbot powered by Microsoft was reported to have given incorrect legal guidance to business owners, including advice that could have led to breaches of employment law. Legal experts warn that similar errors could result in fines of up to €7.5 million (£6.5 million) for providing misleading information to regulators.
To mitigate the risk, businesses are advised never to treat AI as a final authority. Human verification should be mandatory for high-stakes decisions, with clear disclosure when content has been AI-generated.
Weak AI governance is a growing liability
Many organisations have rolled out AI tools without establishing internal governance frameworks, a gap advisers describe as a “ticking time bomb”. Without clear policies, employees may misuse AI systems, input sensitive data, or fail to recognise harmful or biased outputs, increasing the risk of data breaches and legal claims.
Legal specialists recommend introducing company-wide AI policies that define acceptable use, establish review protocols and assign accountability for decisions informed by AI. Treating AI as a regulated business tool rather than a productivity shortcut is increasingly seen as essential.
Data protection breaches carry heavy penalties
AI systems often process vast quantities of personal data, including customer and employee information. Using this data without proper consent, transparency or anonymisation can lead to serious breaches of data protection law, resulting in fines and loss of trust.
Businesses are being urged to minimise data collection, document lawful bases for processing, maintain clear consent records and ensure transparency around how AI systems handle personal information.
Regulation is evolving faster than many businesses expect
Perhaps the biggest challenge for 2026 is the pace at which AI regulation is changing. Governments are introducing new rules that can apply across jurisdictions and, in some cases, retrospectively to systems already in use.
Legal experts warn that companies failing to monitor regulatory developments or audit their AI systems regularly risk falling foul of the law even when acting in good faith. Flexible compliance strategies and ongoing legal oversight are increasingly seen as essential as AI moves from experimentation to core business infrastructure.
The message from advisers is clear: AI remains a powerful competitive tool, but in 2026 it also represents a growing legal exposure. Businesses that fail to embed governance, oversight and compliance into their AI strategy may find the technology creates more problems than it solves.
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Legal experts warn UK firms of rising AI risks in 2026 as regulation tightens
