As Regulators Fall Behind, Legal Grapples With Emerging Tech Risks

While the legal world has sometimes been reluctant to implement emerging technologies in their day-to-day workflows, whether it be artificial intelligence, virtual reality or the metaverse, legal professionals are increasingly forced to grapple with these technologies as they bring new and complex legal challenges to their doorstep.

As many of these nascent technologies have yet to be clearly defined, much less regulated, legal professionals are left pondering how centuries-old bodies of law will adapt to these new challenges.

Speakers at the “AI, Crypto, and the Metaverse, Oh My! Regulatory Implications of a Digital World” Tuesday session at the Women, Influence & Power in Law 2022 conference in Washington, D.C., discussed some of the challenges that come with protecting consumers’ rights and data in an evolving digital space.

The Metaverse: A Work in Progress

While the possibility that the metaverse will soon transform the legal industry has been flaunted for some time now, few legal teams are spending a lot of time in the new virtual space.

If many still don’t quite understand what the metaverse is or what its potential use cases are, it’s because it is still getting defined, said Ilona Logvinova, associate general counsel at McKinsey & Company.

To be sure, that lack of clarity makes regulating the space even more difficult, Logvinova said, adding that these challenges will soon be at legal’s doorstep, whether the industry is ready for it or not.

Some of the main legal risks and considerations that come to mind are “really about data and cybersecurity” Logvinova explained, pointing to new categories of data such as inferred personal data like retinal movement or involuntary health data.

There is a “whole new category of personal data” that needs to be “identified, regulated and protected,” she noted.

While data privacy and security has been a growing focus of regulators in the U.S. and abroad, these new categories of personal data haven’t yet been identified or addressed in regulations, she added.

Cryptocurrency: The Gray, Unregulated Area

Similarly, in the cryptocurrency space, emerging technologies have already gotten ahead of regulators, leaving unregulated areas for crypto players to prosper in, said Lamiaa Elfar, general counsel at Continental Finance Co.

Certainly, despite the cryptocurrency market’s significant growth in the last decade or so, “it’s still a volatile currency” that falls into what Elfar referred to as “regulatory gaps” pointing to a regulatory oversight that has so far been dispersed between many different agencies.

Cryptocurrency technologies have allowed nonbank entities to perform banking activities, whether it be loans or deposits, outside of the banking regulatory perimeter, Elfar said, which has increasingly caught the attention of regulators who are pondering how to adapt.

While she pointed to the comprehensive framework the White House launched in September, which aimed to offer some recommendations into best practices, there is still much uncertainty in the field, she said.

“There is improvement, there is talk and there is acknowledgement … but there is not a ton of clarity,” Elfar added.

The ‘Dark Side’ of Artificial Intelligence

While artificial intelligence has been around for longer than emerging Web3 technologies, there has recently been a growing scrutiny around AI tools.

While Mary Jane Wilson-Bilik, a partner at Eversheds Sutherland, recognized some of the “incredible improvements” in AI technologies, she also noted that AI algorithms are increasingly involved in what she called “eligibility decisions“. And whether it be for hiring, insurance or loans decisions—AI’s biases are increasingly coming into light.

“While AI is incredibly powerful and really an amazing technology, it has a dark side, it has no moral compass,” Wilson-Bilik said. She added, “the models can drift” and “AI can be biased.”

To be sure, it’s not just AI’s biases that are receiving growing attention.

Wilson-Bilik pointed to faulty algorithms that misfire, defective deployments, lack of testing of models and inadequate governance, as well as the tampering of the data or algorithms, privacy issues and a lack of transparency as pressing AI issues.

Certainly, regulators throughout the world have been paying attention to these issues with the EU, UK and Canada among others who have already taken a crack at regulating AI.

The U.S., too, has been attempting to offer some guidelines. Notable recent developments include the White House’s blueprint for an AI bill of rights, as well as enforcement actions from the FTC.

Still, looking ahead, the onus will likely be on companies to assess the privacy and security risks of their AI technology, Wilson-Bilik said.

“What’s gonna be very interesting is to see what companies are gonna be required to do,” she added.