AI-washing: Is your product less intelligent than you claim?

You may have heard of "greenwashing", where a company makes false, misleading, or vague claims about their products or operations and their environmental impact, but have you heard of "AI-washing"? AI-washing is the term used to describe where a company exaggerates the capabilities of a product or service that is marketed as ‘AI’ in order to make it look more sophisticated, innovative or intelligent than it actually is. In a recent CAP News blogpost, the Committee of Advertising Practice (CAP) addressed 'AI-washing' for the first time, setting out what actions should be taken and what should be avoided in order to ensure compliance with the existing Codes when marketing AI-enabled products and services.

The blogpost advises against making false claims that a product uses AI, noting that using AI in the development process is not the same as the product itself using AI. This warning largely corresponds to CAP Code rule 3.1, which prohibits materially misleading marketing communications. The post highlights the need for clarity on claims of AI features, advising against exaggerating claims (CAP Code rules 3.11-3.13) and advising advertisers to make it clear where the benefits of AI would only apply to certain users or in certain circumstances (CAP Code rules 3.9 and 3.10), as well as the requirement to hold substantiation for claims (CAP Code rule 3.7).

The blogpost warns that comparative claims that an AI product has an edge over a non-AI product must be supported by evidence. While there is no strict requirement in the CAP Code to hold evidence in relation to comparative claims, CAP Code rule 3.35 requires comparisons to be 'verifiable'. This could also be seen as a restatement of the 'Comparisons Principle' – that superiority claims must be supported by evidence – as well as the CAP Code rule 3.33, which requires that comparisons must not mislead consumers.

The blogpost ends with a reminder that advertisers are responsible for ensuring marketing complies with the CAP Codes, and that the failure of a developer or lack of understanding by the company is no excuse for non-compliance (see CAP Code rule 1.8 which states that primary responsibility for compliance with the CAP Codes is on advertisers).

Previous decisions on ai-washing

In October 2023, the Advertising Standards Authority (ASA) upheld a complaint against Codeway for breaches of CAP Code rules 3.1 (ads must not materially mislead), 3.7 (ads must be capable of substantiation) and 3.11 (ads must not mislead by exaggeration). 

The complaint concerned a paid-for Instagram post for an app showing an extremely blurry image next to a sharp and clear image, with the caption 'Enhance your Photos with AI'. The ASA ruled that consumers would likely understand the ad to be an objective claim about the app's capabilities and that, in the absence of evidence to show that the results were achievable, the ad was misleading by way of exaggeration.

AI-washing in financial services

There has been a recent focus on the impact of AI-washing in the financial services industry. The Organisation for Economic Co-operation and Development has reported that 21% of global VC investment in 2020 went into AI. Yet, of the 2,830 purported AI startups reviewed in MMC Ventures' 'The State of AI 2019', there was no evidence of AI material to the company's value proposition in 40%.

In March 2024, investment advisors Delphia and Global Predictions settled charges from the US Securities and Exchange Commission (SEC) for making false and misleading statements in relation to their use of AI. Delphia had claimed to use AI in its investment process, while Global Predictions had claimed that its platform provided AI-driven forecasts – both of these statements were held to be false by the SEC. While Delphia had made statements in its SEC filings, in a press release and on its website, Global Predictions had only made statements on its website and on social media. Companies should be careful therefore to avoid false and misleading statements in all public communications.

Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement, specifically referenced AI-washing in the SEC press release, stating that the SEC is committed to protecting investors from those engaging in AI-washing.

The press release followed an SEC Investor Alert published in January 2024 warning of unlicensed investment platforms claiming to use AI and the potential for manipulation of microcap stocks by scams involving AI-related claims. The Investor Alert also warned of relying on AI-generated investment information and deepfake video or audio scams.

To date, the UK Financial Conduct Authority (FCA) has not expressly turned its attention to "AI-washing" as such. Its approach to consumer protection in relation to AI generally is based on a combination of its Principles for Businesses, other high-level detailed rules, and guidance, including the Consumer Duty. The FCA also aims to hold senior managers ultimately accountable for the activities of their firm, and the products and services that they deliver – including their use of technology and AI.  Although the FCA's April 2024 'AI Update' emphasised Principle 7 (that firms must communicate information to customers in a way which is clear, fair and not misleading), this was in reference to the broader areas of fairness and transparency/explainability.

That said, as with greenwashing, we anticipate that the FCA will already be working closely with the ASA on this issue of mutual interest. The FCA may not always go straight for the stick (of fines), often seeking to change behaviours through the use of its supervisory tools initially.  However, faced with an example of deliberate and serious misconduct (similar to that of Delphia or Global Predictions), the FCA can be expected to take enforcement action for breach of the (various) rules and requirements for communications to be clear, fair and not misleading, or even possibly for civil or even criminal market abuse (false or misleading statements).

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For more information on the regulation of greenwashing, please see our blog post: Clean, green marketing strategies: Navigating tougher restrictions on environmental claims in advertising.