Shadow AI: Your Biggest Threat Hides in Plain Sight

I've seen it happen more times than I care to count. A well-meaning employee, eager to boost productivity, creates an AI app without IT approval. They think they're helping the company. In reality, they're opening Pandora's box.

As the founder and CEO of CFO Family LLC, I've spent years helping family offices navigate the complex world of finance and technology. But lately, I've been losing sleep over a new threat: shadow AI.

The Hidden Danger in Your Network

Shadow AI apps are the work of employees creating AI tools without IT and security department approval. These apps, often designed to do everything from automating reports to streamlining marketing automation, visualization and advanced data analysis, are popping up in companies of all sizes.

At first glance, they seem harmless. Even helpful. But here's the kicker: many of these tools are being used to train public domain models with private data. Let that sink in for a moment.

Your company's most sensitive information could be feeding a public AI model without your knowledge or consent. It's not just a data breach waiting to happen. It's a compliance nightmare and a reputational disaster in the making.

The Scale of the Problem

If you think I'm exaggerating, consider this: Itamar Golan, CEO and cofounder of Prompt Security, has cataloged over 12,000 such apps. That's not a typo. Twelve thousand shadow AI apps lurking in corporate networks.

But it gets worse. Around 40% of these apps default to training on any data fed to them. That means intellectual property, financial records, personal information - all of it could potentially become part of their models.

And we're not talking about obscure, fringe tools here. The majority of these shadow AI uses are built on platforms like OpenAI's ChatGPT and Google Gemini. Platforms that your employees probably know and trust.

The Family Office Perspective

In my work with family offices and ultra-high net worth individuals, I've seen firsthand how devastating a data breach can be. These aren't just numbers on a spreadsheet. They're family legacies, generations of wealth, and deeply personal information.

Imagine a scenario where an employee creates an AI tool to analyze investment patterns. Sounds useful, right? But what if that tool is inadvertently trained on the family's entire financial history? Suddenly, their most private financial decisions could be part of a public AI model.

This isn't just a hypothetical. It's a very real risk that family offices and wealth management firms need to be aware of.

The Compliance Conundrum

As someone who's navigated the complex world of financial regulations, I can tell you that shadow AI poses a significant compliance risk. Many industries, especially finance, are subject to strict data protection and privacy laws.

These shadow AI apps, created without oversight, could easily violate regulations like GDPR, CCPA, or industry-specific rules. The penalties for non-compliance can be severe, not to mention the reputational damage.

Balancing Innovation and Security

Now, I'm not here to demonize AI. Far from it. I believe AI has the potential to revolutionize how we work, especially in fields like financial management and reporting. But we need to approach it responsibly.

The challenge lies in balancing innovation with security. We want to encourage employees to find new, efficient ways of working. But we also need to protect our data and comply with regulations.

Steps Towards a Solution

So, what can we do about shadow AI? Here are a few steps I recommend:

1. Education: Make sure your employees understand the risks associated with creating and using unauthorized AI tools.
2. Clear Policies: Establish and communicate clear guidelines on AI usage within your organization.
3. IT Involvement: Create channels for employees to work with IT when they want to implement new AI tools.
4. Regular Audits: Conduct regular network audits to identify and assess any shadow AI applications.
5. Secure Alternatives: Provide employees with secure, approved AI tools that meet their needs.

The Path Forward

As business leaders, we need to take the threat of shadow AI seriously. It's not just an IT issue. It's a business issue that touches on data security, compliance, innovation, and company culture.

In my years of experience, I've learned that transparency is key. That's why at CFO Family, we focus on providing families with transparent, independent reporting. We need to bring that same level of transparency to our approach to AI.

We need to create an environment where employees feel comfortable discussing their AI needs with IT and security teams. Where innovation is encouraged, but within a framework that protects our data and our clients.

A Call to Action

Shadow AI is a challenge, but it's also an opportunity. An opportunity to reevaluate how we approach technology adoption in our organizations. An opportunity to build stronger relationships between IT and other departments. An opportunity to lead the way in responsible AI usage.

As we navigate this new landscape, let's remember that our greatest assets are our people. By fostering a culture of open communication and responsible innovation, we can harness the power of AI while keeping our data - and our clients' trust - secure.

The shadow AI threat may be hiding in plain sight, but with vigilance, education, and the right policies, we can bring it into the light. And in doing so, we'll be better prepared for the AI-driven future that lies ahead.