TL;DR: any form of AI -generated data can boost business performance – but its use also raises some serious legal and privacy issues. In light of the advance and availability of AI technology, various new legislations have been tabled (such as AIDA in Canada), that work in tandem with already established data privacy legislations to regulate AI and AI generated Data.
Quick Introduction: Why this topic matters?
Let’s take an example. Imagine an AI system you purchased for your business predicts customer behaviour flawlessly – but it is trained on sensitive personal data that has been scraped from the web, unintentionally. This could trigger legal blowback.
AI promises a plethora of advancements, but the privacy pitfalls and challenges are considerable. In a global era where data is power, every business needs to walk a very tightrope between regulation, innovation and efficiency. Any form of failure to comply with data protection laws and regulations could not only damage the reputation of your brand – but can also lead to fines, penalties or worse, legal investigations and litigation.
Staying ahead of the legislations and making policies that comply with upcoming regulations is a challenging and arduous task. Let’s take the example of Canada and see how the regulations are slowly shaping up.
Canadian Privacy Law 101 (A quick example)
Canada has been, for quite a while, at the forefront of AI, technology laws and data privacy regulations. The Personal Information Protection and Electronic Documents Act (PIPEDA) regulates how much the private sector organizations handle personal data, what is considered sensitive data and what are some of the steps every business needs to take when using legally AI-Generated data. However, it is only triggered if any form of personal data has been used. Even if you haven’t input your clients’ data into an AI tool, you could still be held liable if the tool was trained on sensitive or unlawfully obtained data—and your business relies on its outputs.
Hence, as soon as any personal information is involved, the following core principles of PIPEDA are triggered:
- Consent: Your clients must understand and agree to having their data be used.
- Transparency: Your business must disclose how the AI affect decisions.
- Purpose Limitation: Data should only be used for specific, stated reasons that your clients are fully aware of.
- Safeguards: Your business has taken necessary steps to protect the data against unauthorized access or leaks.
For a deeper dive into PIPEDA, this is a great article to read.
The advent of AI was still at the horizon when PIPEDA was formed. However, now that it has reached the shores, Canada has decided to introduce a new bill, called Artificial Intelligence and Data Act (AIDA), that works in tandem with PIPEDA to regulate legally AI generated data. As per my understanding, AIDA requires your business to do the following:
- Risk assessments for AI systems.
- Documentation on how data is used.
- Measures to eliminate bias or harm.
- Public reporting on how decisions are made.
For a deeper dive in AIDA, this is a great article to read. The new Bill can be accessed here.
Canadian government even provides a guide on the use of generative artificial intelligence, including due diligence steps required on your end. Highly recommend reading it since many countries follow a similar model.
Legal Enforcement is happening.
Throughout 2024 and in 2025, Canada’s privacy commissioners throughout the provinces have been extremely active in issuing penalties and intiating investigations on businesses and organizations against whom privacy complaints have been made. And this trend has been similar in US, various countries in Europe and some Asian countries such as India.
Another recent issue has been regarding the Intellectual Property issues with image generating AI tools. More on that here.
If your AI uses scraped data or relies on any third party providers, ask yourself the following:
- Was the data they use, collected legally?
- Did the users who gave this data, consented to giving it and it being used in this way?
- Are there any contracts or agreements, such as a Smart Contract, which governs these?
Failing to ask these questions—and verify the answers—could expose your business to significant legal risks, including lawsuits, regulatory fines, or investigations. Even if the mistake was made by a third party, liability may still fall on your organization if you benefited from or enabled the use of unlawfully sourced data.
Actionable Insights: What steps can your business take?
Using AI generated data for your business is not illegal, but following is a checklist you should follow in order to ensure that you do not expose your business to potential liabilities and lawsuits.
- Privacy Impact Assessment: Before you start using the tool, specially those that have access to personal data, conduct a Privacy Impact Assessment, which will help to identify the collection and use of data, assess risks and document policies and strategies to ensure that the AI tool is complaint with the current regulations.
- Be Transparent on your use of AI: Understand that being transparent not only builds trust with your customers/clients, but also helps to protect you legally. Your business should clearly explain how AI systems are used, what kind of data is processed and whether any decisions are made or influenced by such AI systems or tools.
- Build an AI Privacy Policy: Ensure that your policy covers whether the AI is used to make decisions about individuals, whether any personal data is involved in training or inference, whether any data retention takes place, etc.
- Strong Cybersecurity measures: This is a given. Having industry standard technical and organizational safeguards, specially in this digital age, are a non negotiable. Data encryptions, access controls, audits, regular penetration testing – all are a party of daily routine in 2025.
- Finally, establish and AI Governance Framework: You might want to consider either having a team of your own or hiring an external team to form an Ai Governance Committee or task Force, that reviews training data sources and consent obligations, maintains documentation of model architecture, decisions and risk assessments, oversees third-party vendors and contracts involving AI tools and takes other such due diligence measures.
Conclusion
Your business can certainly use AI generated data, but it is not a legal free for all. Various legislations exists and many more are in the works. Taking necessary due diligence steps and being proactive in your approach will help your business to scale effectively and avoid any privacy, regulatory or technical pitfalls.