Although corporate tax departments may be more bullish on the technology, outside firms’ agility has allowed them to adopt generative AI more quickly.

Positive feelings from corporate tax

A recent survey report from the Thomson Reuters Institute of 771 tax professionals analyzed attitudes, adoption, and risks surrounding generative AI’s entrance into the tax industry. Generally speaking, the tax industry feels largely positively about generative AI, with 88% of respondents aware of the technology and more than half saying it should be used in tax work.

But on the whole, corporate tax departments feel a bit more positive about generative AI’s long-term prospects compared to outside tax & accounting firms. When asked whether generative AI can be applied to tax work, 78% of corporate tax departments said yes, compared to just 68% of tax & accounting firms. That discrepancy was even higher among the 89 Canadian respondents, where the difference was 86% and 66%, respectively.

Similarly, when asked whether generative AI should be applied to tax work, 53% of corporate tax respondents said yes, compared with 49% of tax & accounting firm respondents. There was a similar spread when respondents were asked whether generative AI should be applied to non-tax work as well: 59% of corporate tax respondents said yes, compared to 54% of tax & accounting firm respondents.

Corporate tax departments feel a bit more positive about generative AI’s long-term prospects compared to outside tax & accounting firms.

In both groups, there is the belief that there is some risk to generative AI tools — indeed, about two-thirds (67%) of tax professionals said their firms or departments had some risk concerns around generative AI, while an additional 23% said they did not know. Some corporate tax professionals told survey researchers that they thought the benefits would outweigh the concerns.

“What will ChatGPT do to our jobs? I’ve thought about it, and I think there’s a little bit of risk, but the risk is not big,” said Desmond Kwan, director of taxation at KIK Consumer Products. “I think it will help our jobs rather than replace them, because you still need to be a tax professional to understand whether the advice [that ChatGPT] is providing is good or not.”

This extends to how corporate tax departments want their outside tax & accounting firms to be utilizing the technology — 54% of corporate tax respondents said their outside vendor firms should be using generative AI for tax & accounting work, while just 18% said they should not, and the remaining 28% were unsure. But if their vendor firms are using generative AI, those corporate tax professionals explained, it should be as a value-add rather than the whole of their work.

“We are paying for accounting/tax services from qualified professional accountants,” one corporate tax professional told researchers. “If they are going to use ChatGPT or generative AI, there is no reason for us to engage them in the first place as we could just use ChatGPT or generative AI ourselves.”

Firms quicker to adoption

It’s interesting then, that in spite of these positive feelings on generative AI from corporate tax professionals, it’s outside tax & accounting firms that are more quickly implementing generative AI technologies. Notably, 15% of tax, accounting & audit firm respondents said they are already using or have active plans to use generative AI in day-to-day operations, compared to just 6% of corporate tax department respondents. And an additional 29% of firm respondents said they were in the consideration phase of whether or not to use generative AI, compared to just 21% of corporate tax respondents.

Outside tax & accounting firms also expect generative AI technology to roll out more quickly: 69% of firms that are planning to use generative AI expect to do so within the next 12 months, while just 39% of corporate tax departments planning to use generative AI expect the same quick turnaround. More than one-quarter (28%) of corporate tax departments respondents who say they are planning to use generative AI, on the other hand, have no set timeline for that roll-out at all.

In spite of these positive feelings on generative AI from corporate tax professionals, it’s outside tax & accounting firms that are more quickly implementing generative AI technologies.

Part of the reason may be increased nimbleness of outside tax & accounting firms compared to a corporate setting with deeper hierarchy and more red tape. Other respondents who did not believe generative AI should be applied to tax work cited ethical boundaries — and particularly in a corporate setting, whether the technology can abide by the company’s larger ethical codes.

“It doesn’t have the ability to cognitively process — according to my understanding, all it can do is to compile information. This is not enough to adequately evaluate the nuances of tax code or corporate ethics, much less does it possess the ability to function morally or with character,” replied one survey respondent. “This remains solely within the capacity of created humanity.”

Indeed, many respondents on both the corporate tax and tax & accounting firm side of the industry are anticipating a future not where generative AI replaces professionals, but potentially augments low-level work. Even if the corporate and firm sides have some slight differences concerning use cases and adoption rates, they by and large agree that the technology still has some growing to do before it becomes more widespread.

“A college professor teaching a tax course said, ‘The answer to every tax question begins with, It depends.’ After working 26 years I can attest to the accuracy of that quote,” one survey respondent said. “There is a lot of reasoning needed to respond to each question.”

There are use cases for this technology in the financial sector as well; and in fact, both the bad actors and corporate compliance professionals are finding uses for the new technology.

ChatGPT, developed by OpenAI, is a natural-language processing tool driven by AI technology that allows the user to have human-like conversations, and select the desired length, format, style, level of detail, and language to which the tool will respond. The language model can answer questions and assist you with tasks, such as composing emails, essays, and code.

According to an analysis by Swiss bank UBS, ChatGPT is the , with estimates showing that ChatGPT had 100 million active users in January, only two months after its launch. The rapid growth causes this technology to outpace regulatory capacity. Indeed, with no standards, people can exploit the loopholes that are available to them.

Historically, AI has been relegated to individuals who have specialized knowledge, but generative AI is a new category that includes more easily accessible tools, such as ChatGPT, Microsoft’s Copilot, and more. However, this means that people with nefarious intentions, good intentions, or no intentions can all take advantage of this technology, which may be a very dangerous prospect.

Use by fraudsters

The primary concern is what bad actors can do with this new technology and who they may target in these scams. “Scammers have historically been on the cutting edge of technology, and I don’t see this being any different,” explains Tom Bartholomy, CEO of the Better Business Bureau of Southern Piedmont and Western North Carolina. “As they see that work, as they see people engaging with it, they’re just going to continue to refine it and continue to find other scams that .”

Fraudsters have been known to capitalize on new technology, especially in its infancy which is where we are at this point with ChatGPT. Here are some areas where we can expect fraudsters to exploit using generative AI tools:

• • • more persuasive phishing emails;
    • more convincing impersonators scamming for information by phone;
    • fake ChatGPT (or similar) browser extensions and apps;
    • malware created by ChatGPT (or similar tools); and
    • data breaches that threaten the release of personally identifiable information.

While each of these scams is of concern now as Chat GPT evolves, they will become more prevalent and more difficult to identify as the technology evolves. Individuals will have to be always on higher alert and exercise skepticism beyond what had previously been recommended.

In addition to actual crimes, generative AI also runs the risk of deficiencies that could include providing inaccurate, unreliable, or less than sufficient information. Additionally, in cases in which actual human contact is necessary, these deficiencies can provide an additional hurdle that could contribute to the damage that has occurred.

Use by fraud fighters

The most obvious use of generative AI is for chatbots or virtual assistants. The programming can be completed to provide real-time support and manage account activity. Chatbots use small bits of code programmed to perform straightforward functions with the basic idea that the code can provide better customer service in a more timely fashion. Indeed, it often satisfies the customer’s need for immediate assistance.

In this role of servicing customers, AI may have a certain utility from a business perspective, but there are other uses for this technology that will be important from a regulatory perspective. Banks and other financial institutions can now use the coding to create programs that can be used to fulfill regulatory requirements or bridge gaps in oversight. They can monitor transactions, automate on-boarding processes, and properly identify the individuals with whom they are doing business.

While many regulators have yet to publish guidelines that relate to the use of bots or AI in financial transactions, financial institutions should take internal measures, such as updating their anti-money laundering and client relationship policies and procedures when introducing chat bots and other AI technology to automate their customer-facing interactions, according to . “These new policies and procedures should take into account that customers will no longer be interacting with staff trained to look for suspicious behaviors and red flags and ensure that the technology used is sophisticated enough to continue to spot and alert supervisory teams to potential red flags.”

While trying to outpace cyber-criminals, here are some steps that banks and financial institutions can take now:

• • • begin constant and consistent employee training;
    • vigilantly report scams and other suspicious activity;
    • incorporate new technology using a risk-based approval and monitoring process; and
    • monitor new or changing regulatory requirements and technological advancements.

Generative AI — like any other technology — has the potential to do good and move society forward; however, there is also the possibility for it to do great harm. This is especially the case for financial services industry organizations or others working in the financial sector. Just as ChatGPT-generated content can fool its victims, it can also be used to protect assets and increase compliance — the current task ahead is to balance the potential.

According to a recent survey from the Thomson Reuters Institute, both corporate law departments and law firms believe generative AI has a future in law. More than 80% of both groups responded that generative AI can be applied to legal work, and more than half of both groups (54% of corporate respondents, 51% of firm respondents) said that the technology should be applied to legal work.

When it comes to whether corporate legal departments believe their law firms should be using generative AI for legal work, however, the results were slightly more mixed: 44% of law departments answered affirmatively that their outside firms should be using the tool, 23% said their firms should not, and 33% said they did not know.

What accounts for the difference? Corporate respondents that said they were against their law firms using generative AI cited a few common risks, such as accuracy, privacy, and confidentiality. However, central in those responses was also value: Corporate respondents don’t want to pay their outside firms to use generative AI or ChatGPT in a way department lawyers could just as easily do themselves.

“When instructing outside law firms, we have a reasonable expectation of the professional competence of the lawyers we have engaged,” answered one corporate legal respondent. “Both individual lawyers and firms must remain responsible for their work output and advice. Should AI be used for chargeable work, the cost to clients would need to be significantly reduced.”

Similarly, another respondent answered with respect to both accuracy and cost: “The concern is that we would be paying for advice that is perhaps not verified [or] confirmed. Instead, ChatGPT may be relied upon without advising the client.”

These opinions may not surprise many firms, particularly those who are plugged into what corporate clients expect from them. In fact, is the top reason why corporate attorneys say they would recommend one firm over another, followed by service and expertise according to �������� Market Insights.

AI’s impact on rates and value

Still, corporate legal departments and law firms don’t seem to have brought generative AI into rate conversations just yet — or really into any conversations at all. When asked whether the law firms they work with use generative AI or ChatGPT, a vast majority (83%) of corporate law respondents said they did not know. Just 6% said they knew their firms were using generative AI; and the remaining 11% said their firms were not.

This confusion persists despite the large potential for the kind of disruption that generative AI carries for both internal tasks and external work product. Law firm respondents reported exploring a wide variety of use cases for generative AI, including knowledge management, back-office functions, brief and memo drafting, and more. Similarly, corporate respondents that said their firms were using generative AI cited use cases including legal research, brief and memo drafting, contract drafting and review, back-office functions, and question-answering services.

The report also showed that many law firms do not yet have enterprise-wide generative AI policies in place, which would seemingly be a pre-requisite for discussing generative AI usage with corporate clients. However, considering the wide swath of potential generative AI use cases cited by law firms, clients may not want to wait that long, particularly as many have strong opinions about the ethics of how generative AI tools should be used.

“All legal advice should be from a human and not AI,” said one corporate legal survey respondent. “It is possible that you could use AI in some way, but writing legal briefs, pleadings etc. should be generated by a human lawyer who has gone to school, passed the bar, upholds the oath we took. and who is bound by ethical duties.”

Another added: “We pay for work from legal minds, especially in the realm of litigation, we want the briefing to be completed with the trial strategy in mind.”

In the midst of uncertainty around generative AI tools, there can be an opportunity for enterprising law firms and attorneys. A number of corporate law attorneys believe generative AI should be used in their outside firms now, and even more are waiting to see what the future holds.

By beginning the generative AI conversation with clients now, law firms can create their own policies, and ensure they are formalizing generative AI use in a way that complies with client requests for the future. Particularly given how quickly generative AI technology is progressing, a proactive conversation between law firm and corporate client can go a long way if the technology quickly turns from a nice-to-have to a must-have.

A new report comparing legal and tax approaches to generative AI, as well as the difference between corporate and outside professionals, reveals how attitudes and adoption of generative AI are developing in the tool’s early days. Although there are some slight differences in the strength of their opinions — for example, more legal professionals than tax professionals believe generative AI can be applied to their work — respondents from all segments said they feel positively that the technology can apply to their daily work product.

The Future of Professionals: ChatGPT and Generative AI in
Legal, Corporate & Tax Markets report comes from a series of surveys conducted between March and May by the Thomson Reuters Institute of more than 1,800 legal and tax professionals in the United States, the United Kingdom, and Canada. The survey was accompanied with assorted interviews conducted by the Institute, painting a picture of professional services industries that are still weighing their options for adopting the technology even as they eye potential use cases for when they feel the technology is ready.

Some segments are already moving: 15% of tax & accounting firm respondents and 10% of corporate law department respondents, for instance, report already adopting generative AI tools or having made clear plans to do so. Others are still waiting out the technology, however: respondents from 73% of corporate tax departments said they have no plans to adopt generative AI technologies at this time, 13 percentage points higher than any other segment.

Other important findings in the report include:

Most respondents said they feel these technologies can and should be used for work — More than three-quarters (78%) of respondents believe ChatGPT or generative AI can be used for legal or tax work, and about half (52%) of all respondents believe that it should be used. Corporate law and corporate tax departments answered affirmatively at a slightly higher rate — 3 to 4 percentage points higher — than their outside law firm and tax & accounting firm counterparts.

Many are still considering potential adoption — Despite strong feelings about the tools’ potential utility, many within the legal and tax professions are still weighing their options before actually adopting the technology. Just 4% of all respondents said they were already using generative AI or ChatGPT for firm or department operations, and 5% said they were actively making plans to do so. Those numbers were largely consistent across geographies and the type of practice, although tax & accounting firms in particular had a higher rate of adoption or planned adoption (15%) than other types of respondents.

A focus on risk — More than two-thirds (69%) of respondents said their organization has risk concerns around the use of generative AI or ChatGPT, while just 8% said their organization did not have risk concerns. Almost one-fourth (23%) said they did not know. Despite these warnings, however, very few organizations are taking active steps to limit generative AI or ChatGPT usage: Just 20% of respondents said their firm or company has warned employees against unauthorized generative AI or ChatGPT usage, and 9% of all respondents said their organization had banned the unauthorized use of generative AI or ChatGPT.

There is a distinct potential for this technology to change not only how legal and tax professionals work on a daily basis, but how corporate departments interact with their outside firms. As Wei Zhao, General Counsel of Segway, noted: “I think this technology has the potential to replace a lot of entry-level lawyers and allow far fewer lawyers to get the same amount of work done.”

You can download a copy of the Thomson Reuters Institute’s new report, “Future of Professionals: ChatGPT and Generative AI in Legal, Corporate & Tax Markets”, by filling out the form below:

A recent survey has found that those in corporate law departments are largely optimistic about the potential for generative AI and programs such as ChatGPT in performing both legal and non-legal work.

In total, 82% of respondents say generative AI can be applied to legal work, while 54% believe it should be applied to legal work, roughly the same rate as their law firm counterparts. Similarly, 70% believe these tools should be applied to non-legal work as well.

The survey, conducted in late April by the Thomson Reuters Institute, gathered insight from more than 580 respondent lawyers and legal professionals within corporate law departments in the United States, United Kingdom, and Canada. The survey forms the basis of a new report, , which takes a deep look at the evolving attitudes towards generative AI and ChatGPT within departments, measuring awareness and adoption of the technology as well as lawyers’ views on its potential risks.

The report — which pairs with an earlier report done by the Thomson Reuters Institute, ChatGPT and Generative AI within Law Firms — also reveals several key findings that show not only how corporate law departments are approaching their ChatGPT and generative AI plans, but how those plans differ from law firms, and what legal departments want out their law firm partners’ generative AI use. These findings include:

Higher awareness and willingness to apply — Corporate law department leaders surveyed generally had high awareness of ChatGPT and generative AI, with 95% of respondents saying they had either heard of or read about ChatGPT or generative AI. That is higher than the awareness among law firm leaders, of whom 91% said they had either heard of or read about ChatGPT or generative AI.

More comfort with using the technologies — Only a small number of corporate law departments (11%) said they are already using or planning to use ChatGPT and generative AI in their legal operations; however, this was again significantly higher compared to use or planned use by law firm respondents (5%). Among those respondents who said they’re already using or planning to use ChatGPT and generative AI in their operations, 19% of both corporate legal and law firm respondents say they are already using these technologies on a wide-scale basis.

Acknowledgement of the risks involved — Three-quarters of corporate law professionals say they have risk concerns surrounding use of ChatGPT and generative AI, mostly in areas of accuracy, privacy, confidentiality, and security. Further, about one-quarter of respondents said they have received warnings from their companies about ChatGPT and generative AI usage for their work, but only 10% reported ChatGPT and generative AI had been banned at their companies. Many of the objections over AI use in legal work acknowledged the importance of human touch and expertise in the legal profession, the uniqueness and complexity of legal issues, the need for supervision and review of AI-generated materials, as well as ethical considerations and the perception by some that the technology may not be fully ready yet for appropriate use in legal.

Even with the potential risks, general counsel and others are actively preparing for a potentially major change in how work is done. “We’re not shutting our eyes to this,” says one senior legal officer at a large corporation. “We’re working on a solution that would work for us.”

And awareness of generative AI’s potential is likely to spur acceptance and usage, even in the usually reticent legal profession. “Before ChatGPT, technological advancement in legal software has been pretty incremental, but now it appears poised to take big steps toward something significant,” says Gunter Eren, General Counsel in Research & Development at the Business Innovation Centre of Konica Minolta in the U.K.

You can download a copy of the Thomson Reuters Institute’s new report, , here.

Among the other respondents, however, the feeling was not necessarily distaste for generative AI, although some of that did exist. Instead, many are still simply unsure exactly what generative AI is or what it can do. Yet, considering the pace at which law firms have adopted technology previously, this is an understandable feeling given that the public release of OpenAI’s ChatGPT occurred only in November 2022.

Overall, the report found uncertainty across the board among law firm respondents: 25% said they did not know whether generative AI should be applied to legal work, and 21% did not know whether it should be applied to non-legal work. These feelings even extended to other forms of AI outside of generative AI/ChatGPT, as 24% did not know whether their firm uses AI outside of the generative context.

Jason Adaska, Director of the Innovation Lab at , has a team of data scientists working on potential generative AI applications for the firm. Adaska says that because generative AI has appeared on the scene so quickly, there is “an increasing bifurcation in the conversations that I have” between people interested in using it and those unaware of its existence.

“Some people, they’ve seen it in the media, they’re kind of up to date with it,” he adds. “They may not come from a technology perspective, but at least they know about the conversation. Even in March I had some conversations with people who say, ‘I didn’t catch that. What is ChatGPT, what is this word you’re throwing at me?’”

Discovering how generative AI & ChatGPT can help

Similarly, Arsen Shirokov, National Director, Information Technology at , has already begun having conversations with internal stakeholders and external vendors about ways generative AI can be applied in his firm. A sticking point he’s run into, however, is that unlike previous legal technologies that have had a distinct use case, generative AI’s applications are so expansive that they can be hard to nail down.

“Almost everywhere else in technology, you say what this product is: this is an IG solution, this is a business workflow solution, this is an architecture solution, right? …With generative AI, I think we haven’t figured that out yet,” Shirokov says. “We don’t necessarily know which generative AI solutions are for research, for example. Take ChatGPT: It can also draft things for you, but for review, you cannot feed the bunch of documents to ChatGPT yet and just say, review this.”

Until those questions are answered, many lawyers also remain unsure of how their firms will handle generative AI on a wider scale. Our report found that 36% of respondents said they did not know whether their law firm had risk concerns around generative AI usage. Additionally, 19% did not know whether their firm had issued warnings against unauthorized generative AI use; and 22% did not know whether their firm had banned unauthorized generative AI use outright.

“How are we going to get people comfortable not just with the technology, but with the fact that they are interacting with a machine, and yet it doesn’t feel like you’re interacting with a machine?”

Even those respondents who reported their firm had underlying risk concerns over these advanced technologies counted a lack of technological maturity as one of those barriers. “A lack of understanding of the underlying risks,” wrote one respondent when asked why their firm had concerns around generative AI.

“Lack of insight/ability to control algorithms, data sets, and assumptions/biases of generated results. Lack of disclosure of disclaimers, boundaries, and assumptions when results return. Lack of ability to assess confidence in generated results,” wrote another.

As a result, for those law firms actively considering embracing generative AI — the report found 40% of firms were at least considering its use — encouraging adoption may be as much of a knowledge and informational issue as a technological issue. To that end, Jessica Lipson, Partner and Co-Chair of the Technology, Data & IP Department at , said her firm has been treating communication as a “high strategic issue” in potentially adopting generative AI technologies. “How are we going to get people comfortable not just with the technology, but with the fact that they are interacting with a machine, and yet it doesn’t feel like you’re interacting with a machine?” Lipson asks.

Part of the answer may take a cue from the 1989 film : “If you build it, they will come.”

Holland & Hart’s Adaska says he’s gained interest in his team’s generative AI efforts by simply letting attorneys play around with the tool themselves. “I think that’s the story of the last few months in this,” Adaska adds. “A number of people who maybe would have either not paid attention or have been skeptical are being won over by actually trying things they thought weren’t possible and being pleasantly surprised.”

Not surprisingly, strong opinions arose, not only about the potential sea-change in the delivery, pricing, and execution of legal services that the wider use of generative AI could bring, but also about the unknown risks that such usage could pose.

In fact, a recent survey of law firm lawyers illustrated this dichotomy well — a large majority (82%) of those surveyed said they believe that ChatGPT and generative AI can be readily applied to legal work; and a slightly smaller majority (51%) said that ChatGPT and generative AI should be applied to legal work.

The survey, conducted in late-March by the Thomson Reuters Institute, gathered insight from more than 440 respondent lawyers at large and midsize law firms in the United States, United Kingdom, and Canada. The survey forms the basis of a new report, ChatGPT & Generative AI within Law Firms, which takes a deep look at the evolving attitudes towards generative AI and ChatGPT within law firms, measuring awareness and adoption of the technology as well as lawyers’ views on its potential risks.

The report also reveals several key findings that deserve special attention from law firm leaders and other legal professionals as ChatGPT and generative AI evolve from concept to reality for the vast majority of the legal industry participants. These findings include:

• • • Attitudes are evolving around this technology — While almost everybody we surveyed had heard of ChatGPT and generative AI, actual use among law firms thus far was quite limited, with just 3% of respondents saying they are actually using generative AI right now. Of course, a much larger portion (34%) said their firm was still considering whether or not to use generative AI for legal operations.
    • Firms are taking a cautiously proactive approach — About 15% of respondents said their firms have warned employees against unauthorized generative AI use at work, and 6% said their firms have banned unauthorized usage outright, indicating that many lawyers clearly understand the importance of applying guardrails to generative AI use. In fact, all those interviewed noted that they do not fully trust generative AI tools — and particularly the public-facing ChatGPT tool — with confidential client data. Yet, even as this mistrust exists, our research shows that attitudes are changing, and potential use cases are being explored by many law firms.
    • There’s a growing awareness of the risks — A large portion of respondents had concerns with use of ChatGPT and generative AI at work — 62%, which included 80% of partners or managing partners. Further, many of the concerns voiced in our survey seemed to revolve around the technology’s accuracy and security, most specifically about how law firms’ concerns of privacy and client confidentiality will be addressed. Still, many legal industry observers (and many of our respondents) know that by any measure, we are still early in the game for generative AI and ChatGPTs. It is expected that time and experimentation will make users more comfortable with these tools, and a day will come when generative AI and ChatGPT is in as common use within law firms as online legal research and electronic contract signing are now.

Yet, whichever side of the debate over this fledgling technology a lawyer might find themselves, one idea the report makes clear — whatever the level of use of ChatGPT and generative AI eventually reaches among law firms and throughout legal, this technology has the potential to change the industry. And even in its infancy, the growing acceptance of ChatGPT and generative AI is being seen as a watershed moment.

“Within the next six months everybody at the firm will be using it,” said Charlotte Woolven-Brown, Head of Employment and a Partner at law firm Sternberg Reed in the United Kingdom. “And there’s absolutely no way you’re going to stop that, because people will get more in tune with what’s happening and how quickly this technology is developing.”

You can download a copy of the Thomson Reuters Institute’s new report, “ChatGPT & Generative AI within Law Firms” by filling out the form below:

However, the reality remains far from simple. There are layers of algorithms that create content (thus the generative part of the name) by continually predicting the next word, with extremely large data sets needed to make these predictions accurate. Further, the newly-released GPT-4 is even multi-modal, meaning it can accept both text and image inputs, which ratchets up the complexity even further.

As a result, even among the most optimistic technologists, there remains some generative AI risks that can’t be ignored. And as a key panel, Reshaping the Legal Profession: Thriving in the Age of Generative AI & ChatGPT, at the recent explored, the heavily hyped technology may be less of a do-it-all tool and more of a “moderately bright, but very lazy first-year associate.”

What generative AI is & what it isn’t

That comparison came courtesy of panelist Aaron Crews, currently Chief Product & Innovation Officer at alternative legal service provider UnitedLex and formerly Chief Data Analytics Officer at law firm Littler Mendelson. Crews noted that while many legaltech types have high hopes for generative AI use in law, including himself, at its core the technology isn’t that revolutionary.

“Generative AI is fancy marketing-speak for a machine that anticipates where you want to go next,” he said, adding that while there may be high expectations of a tool named artificial intelligence, in reality “it’s not intelligent.”

Indeed, generative AI is bounded by the data that is put into the system. That means that ChatGPT, developed by OpenAI and currently the most famous generative AI platform, has access to untold amounts of data to make its predictions — but that data is only current as of 2021, meaning it cannot adjust to newer events.

The tool also suffers from “hallucinations,” meaning that sometimes the technology “predicts” facts that have no actual basis in reality. In one notable case, as explained by panelist Foster Sayers, General Counsel & Chief Evangelist at software company Pramata, a Michigan judge tried asking ChatGPT about why a certain court decision was decided the way it was and found that ChatGPT completely made-up precedential cases — something the judge caught easily, since he had decided the case himself.

With the recent release of GPT-4, a factual accuracy rate between 70% and 80%, depending on the subject matter. But that 20% below perfect is “significant” in law, explained another panelist, Ilona Logvinova, Associate General Counsel at McKinsey & Company. Technologists in law often run into risk-averse attorneys and clients, where one bad experience can lead to a closed door for all future technological advancements. And although some companies and are hiring for a new role known as a prompt engineer to ask generative AI platforms more specific questions to get a desired outcome, it’s impossible to create a foolproof system.

“Prompt engineers are getting more popular, but they’re also learning on the spot,” Logvinova noted.

So where’s the use?

That’s not to say that generative AI will fall by the wayside, however. The panel identified a few potential use cases for generative AI in professional services as it now stands: document analysis, review and drafting; research and knowledge management; contract analysis and drafting; and chatbots and assistants. However, the technology is moving quickly, and so too are its potential applications, panelists added.

One panelist, Danielle Benecke, Founder of Baker McKenzie Machine Learning at law firm Baker McKenzie, noted that “firms and other enterprises have been sitting on this unstructured data forever,” which generative AI can help unlock.

However, while many regular generative AI use cases focus on the wide data sets the tool already has, it’s more interesting to start with the enterprise’s data and running AI against it, Benecke explained, adding that, for example, a firm’s M&A deal room could run generative AI against the data set and theoretically create a due diligence checklist based on the firm’s contracts that are already in place.

Pramata’s Sayers did question how much better generative AI is at producing new documents and contracts than simply using regular templates. While generative AI may produce bespoke work product, legal documents often have to be worded in a very specific way that’s tough to predict, he said. Contract experts such as TermScout’s Evan Harris have , finding that while generative AI can create a passable first draft contract, the outputs still require a good deal of editing and governance.

With these limitations in mind, Logvinova added “it’s safer and less risky” to use generative AI for internal purposes rather than for client-facing content or communications. Crews agreed, saying that he “absolutely would not” use ChatGPT for client work as the technology currently stands, but that it may be helpful in fast-forwarding the data creation and ingestion process.

No matter the use case, however, all panelists agreed it’s paramount to avoid the temptation of adopting generative AI just out of curiosity. Due to its risks, and with the technology in its early stages, any use should be conducted with the firm’s overall data strategy underpinning the AI use and with a specific goal in mind.

Benecke said her exploration of generative AI primarily focuses on holistic applications across the firm rather than one-off use cases. Any time the firm adopts an AI tool, she said, it’s with the specific goal to “supercharge the firm’s most valuable pre-existing service lines,” directly tying the AI use with a firm strategic initiative.

Still, there remains a number of unknowns about generative AI’s use in professional services, and the balance between risk and innovation with generative AI weighing on the scale is one that firms are still working out.

“Be forward-leaning, but be smart about your governance,” Benecke warned. “You don’t want to be that cautionary tale.”

Despite a radically more difficult economic environment and declining valuations for tech companies, smart money continues to find its way into Legal Tech. However, the growth and impact of the sector seems to be lagging in Latin America, especially when comparing it to more mature markets in the United States and Europe.

Data is notably scarce and unreliable in the Latin American region, but various attempts at mapping the Legal Tech sphere do give us a sense of where the market is right now. (Some of these attempts include efforts by ; ; ; ; and .)

The first elephant in the room is Brazil. The country and its legal market play in a league of their own, and Brazil’s Legal Tech market is no different. But as a rather insular economy, with particular regulatory and linguistic barriers, it operates in a separate sphere and does not form part of a broader regional ecosystem that many observers see emerging in the rest of (mostly Spanish-speaking) Latin America.

Based on our own research and when looking into the above-mentioned market research, we estimate there are currently between 200 and 250 Legal Tech initiatives across Latin America (outside of Brazil), of which 70% are located either in Mexico, Argentina, or Colombia. We should add here that because of the relatively high turnover rate, this number is a fast-moving target because publicly available data doesn’t allow us to put any figures on the current size of the market.

When categorizing the various Legal Tech projects, both from the private start-up sector, captive initiatives within law firms, and Legal Tech initiatives promoted by the judiciary or other government institutions (estimated at 15% of all initiatives we were able to identify), we see that about one-third of these initiatives are centered around document management and contract automation, e-signatures solutions, and practice management software.

Analysis of the size, maturity, and health of the various Legal Tech ecosystems in Latin America reveal four key factors that directly affect the potential growth and success of these Legal Tech initiatives:

1. 1. 1. Regulatory framework and quality of the judicial systems;
      2. Availability of digitized of public records;
      3. Market conditions (size and maturity of the legal market); and
      4. Access to funding.

One major obstacle that seems to be holding back the coming of age for Legal Tech in Latin America is the lack of a unified legal system across the region. Latin America is made up of numerous countries, each with their own legal systems, institutions, and regulations. Some regionalization attempts in the main trading blocs such as , of the Southern Common Market) and have not yielded the level of legislative harmonization required for easy regional expansion. This can make it difficult for Legal Tech companies to develop products and services that are transferrable across borders, in turn hampering the scalability of their solutions.

This is especially complicated in the Caribbean, where common law legal systems prevail in the English-speaking countries, contrasting with the civil law systems in Spanish-speaking jurisdictions.

Building the foundation for Legal Tech

Apart from these regulatory differences, there are still many countries in Latin America that simply lack specific regulation that is required to have a solid foundation on which Legal Tech solutions can be built. There are notable gaps in terms of privacy and data protection regulation, electronic signatures, e-commerce, and access to public records and information. These laws have been drafted in some countries, but are non-existent in others, and the levels of implementation vary greatly.

For example, the difference between Ecuador, which has drafted and implemented a highly praised data protection law, and other Central American countries, such as Guatemala and El Salvador, that still are waiting to have such laws approved by their congresses. Similar marked differences exist across the other areas of legislation noted previously. And on top of this institutional weaknesses, many countries also lack a culture of legality in social and business relationships.

Finally, the stability (or lack thereof) of the regulatory framework also affects the viability of Legal Tech initiatives. Colombia, for example, is undergoing yet another tax reform process, the 21^st reform the country has had since 1990. Any Legal Tech initiatives focused on that sector need to factor in the volatility that comes with increased politization and political instability that still constrains the region.

Although 70% of Latin American countries have a formal digital transformation and innovation agenda for the public sector, the digitization of the government and judicial institutions lags behind in most countries. Indeed, less than 30% of government procedures can be carried out entirely online in Latin America, and only 7% of citizens performed their last transaction with their government in an online format, according to a study published by the Inter-American Development Bank. And while there is no shortage of plans, a lack of substantial investment and institutional capabilities hamper the execution of this digital agenda.

Understanding the local legal market

These conditions are further exacerbated by an underdeveloped legal market that is still largely dominated by traditional small-scale legal service providers. In the larger economies, international law firms have clearly gained a foothold in the local market, but these firms mostly serve international financial institutions and multinational companies. The lack of strong domestic private sector development, and limited penetration of broadband internet and mobile phone use in Latin America also limits the total addressable market of Legal Tech companies. So even though a market in appearance can be substantial, the actual potential end users of Legal Tech solutions are still limited. Adding to these factors are also cultural barriers. Many people in the region are still hesitant about the use of technology, not only for legal services but for services in general, preferring instead to work with service providers in person.

Finally, another difficulty is the lack of funding for Legal Tech initiatives in the region. Many Legal Tech start-ups in Latin America struggle to find the investment needed to develop and scale their products and services. We have found that most of the appetite of venture capital has gone to financial tech (FinTech) initiatives, often referred to as the big brother of Legal Tech. What is clear is that FinTech is perceived as a better business and has absorbed a lot of the risk capital that ballooned in the region over the last five years. The deluge of investment that poured into late-stage Latin American tech companies in recent years has now dried up, however, and it is likely that access to funding for Legal Tech will suffer as a result.

Still, there are initiatives in the region such as the Global Legal Tech Venture Day held in Bogota and the Magno Foro LegalTech event in Mexico in 2022, that are geared toward the exposure of Legal Tech initiatives to funding. And there is a growing track record of substantial venture capital investment in Legal Tech, such as the headline investment in Chilean company LemonTech by the U.S. investment firm Accel-KKR based out of Silicon Valley.

Indeed, we’ve seen a Cambrian explosion of Legal Tech initiatives in Latin America, but the local context has so far proven much less fertile for these initiatives to flourish and scale up. As of right now, the macroeconomic conditions will likely complicate the access to funding in the short term, and without rapid improvement in the quality of regulatory frameworks, institutional set-up, and market conditions, domestic Legal Tech companies will have a hard time competing with larger consolidated players from outside the region that will be looking to expand their business and tap into new markets.

On the other hand, the democratization of artificial intelligence-based solutions such as ChatGPT, and other tools that make Legal Tech more user friendly and accessible, are going to expand the user base and open the door to applications and solutions not yet seen in the region.

So, despite some of the restraints described above, there is still a great opportunity to spearhead the development of Legal Tech solutions in the virtually untapped Latin American market. And those companies that can successfully time the market and navigate its particular conditions will still benefit from a first-mover advantage — the opportunity is there.

As we enter 2023, the specter of a potential recession looms over all budgetary and strategic decisions. Professionals in corporate law and tax departments are already anticipating having to do more with less, which will likely impact how they work with their outside partners over the next 12 months. Add into this a mixture of new governmental regulations, and these next 12 months could start to look less optimistic and more of a trial to overcome.

In , available on the , our team of strategists reveal the trends they’re watching as we enter 2023, and how changes in the overall economy may affect this coming year’s strategic priorities.

Rabihah Butler, Head of Compliance & Government Insights, says that compliance is the name of the game in the risk and fraud space, with the Beneficial Ownership Act, the Enablers Act, crypto-regulation, and ESG compliance all playing their part to make the coming regulatory year a complicated one. And in the event of an economic downturn, there may be questions surrounding who bears the burden of that compliance risk, as well as how government entities and court systems will be able to continue key system reforms that they began during the pandemic.

Natalie Runyon, Head of ESG Insights & an Advisory Services Consultant, believes 2023 may be “a painful year because of multifaceted operational challenges and other headwinds” facing those responsible for ESG within organizations. The Securities and Exchange Commission’s rules on greenhouse gas emissions and the European Union’s new corporate sustainability reporting requirements both will increase work for lawyers and accountants, while certain social aspects of ESG — most significantly, the increased focus on employee well-being as a key performance indicator of organizational well-being — will remain a key priority for boards, especially in a tighter labor market.

Zach Warren, Head of Technology and Innovation Insights, views the tech and innovation landscape as one where next-generation technologies such as artificial intelligence, blockchain, and even ChatGPT may be taking a back seat to tried-and-true standards like business development and security and data protection. �������� research has shown that while technology investment has continued thus far in the legal and tax industries alike, a recession may mean scaling back some research and development initiatives.

Bill Josten, Head of Legal Marketplace Innovation Insights, notes that what is top of mind for corporate law department leaders and law firms alike isn’t changing: the volume of matters they’re seeing is increasing. However, flat budgets and a potential down economy may have changed the calculus of how those matters will be tackled. Tighter budgets are forcing corporate law departments to tier their outside work, which could mean a potential rise in utilization of alternative legal services providers. Law firms, meanwhile, also are eyeing what inflation might mean for their realization rates and how to hold onto demand in the face of those tightening corporate purse strings.

Finally, Nadya Britton, Head of Tax and Accounting Insights, explains that small and midsize tax & accounting firms are looking to continue their advisory services expansion, particularly with continued industry automation and a de-emphasis on simple compliance work, while large tax firms are focusing on specialization in specific industry areas. Corporate tax departments, meanwhile, are “all about data, data, data,” Britton says, particularly with trying to better integrate the tax function into their organizations’ wider business initiatives. Even though any economic downtown may not impact tax as strongly as other industries, there are still implications around the industry’s growth plans to be considered.

As our team of strategists describe it in the podcast, 2023 is set to be a complicated year, but research has shown that there can be reason for optimism among all areas of professional services. Even with economic uncertainty looming on the horizon, the next year can prove fruitful with a little strategic planning and care.

You can get the whole story on the outlook for 2023 and listen to here.