Privilege is something your lawyers think about constantly. You probably don't. When outside counsel sends a confidential advice note - on a regulatory matter, a product decision, a live investigation - it's privileged. That protection can determine what regulators can compel you to hand over, what survives if litigation arises, what stays between you and your lawyers.
Based on a recent case, it is also surprisingly easy to destroy. All it may take is someone on your team pasting that advice into ChatGPT to pull out the key points before a board meeting.
Where the risk actually sits
The privilege risk from AI tools isn't abstract. It's mechanical. When someone uses a cloud-based AI tool, the text they input gets sent to a third-party server. Depending on the provider's terms, that data might be stored, used for model training, or accessible to the provider's engineers.
If the text includes privileged material - outside counsel's advice on a regulatory investigation, a legal opinion on product compliance, litigation strategy shared in confidence - you've potentially disclosed it to a third party. And once privilege is waived, you can't reclaim it.
This matters in regulated environments more than most. If a regulator comes asking, or litigation arises, you want your legal advice protected. That protection is fragile. Sending privileged content to a third-party AI provider is exactly the kind of disclosure that can destroy it.
Consumer-grade tools are the sharpest edge of this problem. Enterprise AI deployments can be configured to keep data within a controlled environment. The free version of ChatGPT, Claude, or Gemini? Your data leaves your control the moment someone hits enter.
Most people in your business understand this risk vaguely. Very few have actually checked what tools are in use, on what terms, and on what types of content.
The sharing problem
There's a second risk that gets less attention. AI tools are fast, which means people use them to process and redistribute information quickly. Someone summarises a lengthy legal opinion using an AI tool, then shares the output with a product team, a finance partner, or an external counterparty.
The output doesn't look like privileged legal advice. It looks like a clean two-paragraph summary. That's exactly what makes it dangerous.
Across a fintech or regulated firm, the people handling legal advice aren't always lawyers. Compliance analysts, operations staff, finance teams, and senior leadership all receive and work with documents that carry privilege. They're not thinking about privilege - because nobody built it into their workflow.
What Simmons & Simmons actually published
The firm published an AI and Legal Privilege Guide and Policy Framework - a practical document aimed at helping organisations use AI tools without inadvertently waiving privilege.
The guide draws a clear line between open AI systems (consumer tools where data leaves your environment) and closed AI systems (enterprise deployments where processing stays internal). That distinction is the foundation of any sensible policy.
Beyond that, it provides a template for governing AI use on privileged material: which tools are approved for which types of work, who has sign-off authority when AI is used on sensitive legal matters, how to handle AI-generated outputs that touch on privileged content.
It was written for law firms. The underlying problem applies equally to any business that receives and relies on legal advice. Which is every regulated firm.
The real issue is policy, not technology
The technology question is straightforward: use enterprise tools with proper data handling agreements, or keep AI away from privileged material. That part is solvable.
The harder question is governance. Who in your organisation decides which AI tools are approved? Is there a policy that distinguishes between privileged documents and everything else? Do your compliance and operations staff know how to handle AI-generated summaries of legal advice? Has anyone actually audited what tools people are running day to day - including the ones they found themselves?
For most fintechs and regulated firms, the honest answer to all of those is no.
What you can do today: Download the Simmons & Simmons AI and Legal Privilege Guide (free on their website) and use it as a starting template, even though it's written for law firms. Before you get to policy drafting, do one thing first: ask your team what AI tools they're actually using right now. Not what's approved - what's actually happening. The gap between those two answers is your privilege risk.