AI Privacy & Governance Updates for Canadian Businesses

For most private-sector organizations, no. PIPEDA permits cross-border transfers to processors in other countries, including the US, provided that comparable protection accompanies the data. However, the Canadian organization remains accountable for what happens to that data after it leaves. Sending employee or client data into a US-based AI tool does not transfer your obligations under Canadian privacy law, it extends them.

Exception: public-sector bodies in BC and Nova Scotia face provincial restrictions that require certain data to remain on Canadian soil. If your organization handles data on behalf of those bodies, the residency question has a different answer.

Almost certainly. Shadow AI, employees using personal or unsanctioned AI accounts for work tasks, is the most common compliance gap we see across Canadian SMBs in 2026. The data handling terms of those personal accounts are not the terms your business has agreed to with its customers and regulators. The starting point is a written policy that identifies which tools are approved for which types of work, and a sanctioned business-grade alternative employees can actually use. If employees need AI to do their jobs, give them a governed option or the policy will be ignored.

Regulators and insurers are both asking about AI governance in 2026. The Office of the Privacy Commissioner has signalled it is willing to pursue judicial remedies rather than relying only on voluntary compliance. Cyber insurance applications increasingly include questions about which AI tools are sanctioned, what data classifications are permitted in those tools, and whether employees have signed an acceptable use policy covering AI. Organizations that have documented their AI use, defined approved tools, and trained staff will have a much shorter compliance runway than those that have not.

No. A business or enterprise plan materially reduces risk by turning off default training, providing admin controls, enabling a Data Processing Addendum, and giving you audit capabilities. But it does not replace policy, training, or governance. Employees still need to know what data they can and cannot enter into AI tools. Admins still need to configure retention settings. Permissions still need to be reviewed. The account is the foundation, not the whole structure.

Only where the tool, account type, contractual terms, and your internal policy all allow it. Sensitive client data, including anything covered by professional obligations, confidentiality agreements, or regulated categories such as health, legal, or financial information, requires additional caution regardless of which platform you use. The question to ask before entering any information into an AI tool is: would I be comfortable if my client knew I had done this, and does our agreement with them permit it?

Microsoft 365 Copilot is built into your existing Microsoft 365 environment. It accesses emails, files, Teams chats, and calendar data that you are already authorized to see within your tenant. Data stays within Microsoft’s service boundary and is not used to train AI models. The primary governance risk is not data leaving Microsoft; it is that Copilot surfaces whatever your employees already have access to in Microsoft 365. If file permissions are too broad, Copilot will reflect that. Organizations need to audit and tighten permissions before deploying Copilot. ChatGPT and Claude are separate platforms that require their own account governance, admin settings, and data use review.

Start with four things. First, define which AI tools are approved for work use and which are not. Second, prohibit unmanaged personal-account use for business data. Third, move employees to business-tier accounts on approved platforms. Fourth, train staff on what information can and cannot be entered into AI tools. Those four steps address the most common regulatory and insurance gaps Canadian SMBs face today. From there, Smart Dolphins can help you build a more complete AI governance framework including policy documentation, staff training, tool monitoring, and ongoing governance.