Australian SMBs are adopting AI at record speed, but legal expert Madeleine Porter warns three critical security gaps are being overlooked. Here’s what to watch for.
What’s happening: Artificial Intelligence adoption among Australian small and medium businesses has reached a tipping point, with 80 per cent claiming to have adopted, or plan to adopt, AI within the next six months to two years, according to the Australian Small Business AI Report 2025.
Why this matters: Understanding how to harness AI safely whilst protecting business and client information has become essential for SMB survival in 2025’s digital landscape.
Australian small businesses are racing to adopt AI, with four in five now using or planning to implement artificial intelligence within the next two years. Yet beneath this transformation lies a troubling reality: security vulnerabilities are mounting faster than defences.
The enthusiasm for AI adoption has created concerning security gaps across the Australian SMB sector, with many businesses unaware of the risks they’re taking on.
According to Madeleine Porter, Legal Industry Expert for the Asia-Pacific region at iManage, whilst AI can dramatically enhance an organisation’s security efforts when harnessed safely, the current adoption patterns reveal three critical watchouts that businesses cannot afford to ignore.
“If misused, it can hinder those efforts and open SMBs up to vulnerabilities and potential cyber attacks,” Porter warns.
Increased attack surfaces
The first vulnerability stems from AI’s data-hungry nature, which fundamentally expands a business’s exposure to cyber threats.
“AI usage results in the production of more data. Increasing your data increases the surface area for an attack, making your business arguably more vulnerable to cybercrime,” Porter cautions.
This challenge is particularly acute for small businesses that may lack dedicated IT security resources. As AI tools process, generate and store increasing volumes of information, each data point becomes a potential entry point for malicious actors.
“Running regular security checks will help monitor and deter any unwanted cyber incidents,” she advises.
The scale of this vulnerability becomes clear when considering that 58 per cent of Australian SMBs are currently using AI tools, yet less than half have implemented enterprise versions with robust security protocols.
Evolving cyber threats
The second critical watchout involves the rapid evolution of the threat landscape itself, which is advancing in lockstep with AI capabilities.
“As technology evolves, so do cybercriminals, who adopt increasingly advanced and sophisticated techniques to conduct cyberattacks,” Porter warns.
This creates a concerning arms race where small businesses must not only adopt AI but ensure their security measures keep pace with increasingly sophisticated threats. The traditional approach of reactive security is no longer sufficient in an environment where cyber criminals are themselves leveraging AI to identify and exploit vulnerabilities.
“Organisations need to ensure that they partner with cyber safe vendors who value and prioritise cyber security as part of their business DNA and have a proven track record,” Porter stresses.
For many Australian SMBs, this means fundamentally rethinking vendor relationships and security partnerships, moving beyond cost considerations to prioritise proven security credentials.
Platform security gaps
The third vulnerability represents perhaps the most immediate risk: the dramatic variation in security standards across different AI platforms.
“Not all AI platforms and programs have the same level of security and therefore it is essential organisations have a policy in place when it comes to AI usage,” Porter stresses. “For example, confidential information should be shared with highly secure platforms rather than open platforms such as ChatGPT.”
This warning carries particular weight given recent research commissioned by HP. Among SMBs exclusively using free AI tools, 81 per cent report deploying these tools for tasks involving confidential data, and one in ten admit to actively putting company data at risk of privacy breaches.
The gap between enterprise-grade AI platforms with robust security protocols and free consumer tools is substantial, yet many small businesses remain unaware of the distinction or the risks involved.
Smart defences
Despite these vulnerabilities, Porter emphasises that the solution is not to avoid AI but to adopt it with proper safeguards in place.
“Educating yourself about the potential risks and benefits is essential to staying vigilant and getting the most out of AI,” she advises. “Having a detailed policy in place to guide business use will also help protect your business from any serious mishaps, ensuring that AI strengthens and supports your security efforts, rather than hindering them.”
Porter highlights that when implemented correctly, AI can actually enhance security through compliance support, proactive threat detection and continuous monitoring. “AI can detect normal and abnormal patterns of work and online traffic by continuously monitoring anomalous activity,” she notes. “By providing real-time monitoring of patterns and activity, AI can flag any unusual activity as it occurs, enabling businesses to respond in real time to cyber security concerns.”
The path forward requires Australian small businesses to match their enthusiasm for AI adoption with equal commitment to cybersecurity. This means implementing formal AI usage policies, investing in enterprise-grade platforms for sensitive data and partnering with vendors who prioritise security.
For SMBs navigating the age of AI, recognising these three critical vulnerabilities represents the first step towards safe and sustainable digital transformation.
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