The RegTech sector is awash with artificial intelligence tools promising to revolutionise legal and compliance work. But beneath the marketing noise, a fundamental flaw is emerging — one that no amount of new features or upgraded language models can fix on its own.
Zeidler Group, a firm specialising in investment management regulation, is sounding the alarm over what it sees as a widespread shortcoming in how legal AI tools are built. While vendors continue to pile on enhancements — from expanded model capabilities to growing rosters of legal engineers and advisory board members — the firm argues that the industry is losing sight of what actually makes these tools useful: the knowledge that comes from years of working inside the industry itself.
The distinction Zeidler Group draws is between what the law says and how it is actually applied. Blackletter law and formal regulation will always form the foundation of any legal AI product, but in practice, particularly within investment management, compliance is far messier.
Firms approach regulatory requirements through the lens of their own risk appetite, and what constitutes acceptable practice can vary considerably from one organisation to the next — all while remaining within the bounds of the rules. This unwritten dimension of regulatory life, sometimes called market practice, is not captured in any statute or guidance document. It lives in the experience of the people who have spent years navigating it.
This is precisely where many legal AI tools fall down. Feeding a model on static, written information — however comprehensive — cannot replicate the contextual, interpretive knowledge that comes from real-world application. The age-old computing principle applies just as much here: garbage in, garbage out. If the training data does not reflect how regulation is genuinely implemented on the ground, the outputs will be similarly detached from reality.
Zeidler Group’s response to this challenge is to treat its AI tools as continuously evolving products, shaped by ongoing feedback from practitioners actively working with the regulations. Rather than relying solely on formal legal data, the firm draws on curated, qualitative insight from clients and industry participants to ensure its tools reflect the realities of day-to-day compliance, not just the letter of the law.
The firm actively invites feedback — positive and negative — from every client and prospective client it works with, using that input to refine and retrain its products over time.
For more insights, read the full story here.
Copyright © 2026 FinTech Global
