Context: The rapid expansion of Artificial Intelligence (AI) is creating risks that cross national borders and traditional sectoral boundaries, affecting finance, labour, elections, healthcare, climate and national sovereignty.
- The growing use of AI in emerging economies makes their participation in global AI governance essential, as these countries are major users of AI and provide significant data, labour and markets for AI development.
- The debate has strengthened the case for an International Institute for Regulatory Development (IIRD) as a global institution addressing interconnected AI, financial and climate risks.
Why Emerging Economies Must Be Represented
- AI-related risks can transmit across countries through financial markets, digital infrastructure, data flows, employment and climate-related vulnerabilities.
- Financial Stability Board (FSB) Chair Andrew Bailey has warned that leverage, high asset valuations and excessive optimism around AI could interact and amplify a cross-border financial market correction.
- Emerging economies face particular vulnerabilities because they combine large AI user bases with relatively weaker regulatory and institutional capacities.
- Despite this, emerging markets remain inadequately represented in proposals for new global AI governance institutions.
International Institute for Regulatory Development
- During India’s G20 Presidency in 2023, the authors proposed establishing an IIRD under the G20 and FSB to develop standards for emerging technologies, undertake regulatory research and adapt global rules to emerging economies.
- The rapid expansion of AI strengthens the case for such an institution.
- The proposed IIRD would function as a global apex body for AI, financial and climate risks, complementing rather than replacing existing institutions.
Core Functions of the IIRD
1. Research, Regulatory Capacity and Early Warning
- A permanent secretariat could conduct joint assessments of how AI and other emerging risks propagate through financial systems and climate exposures.
- Its research should draw on data from both advanced and emerging economies, addressing gaps in existing global surveillance mechanisms.
- The FSB is primarily a coordinating body rather than a dedicated research institution; therefore, the IIRD could complement its work without duplicating it.
2. Global Exchange of Regulatory Practices
- The IIRD could create a living repository of regulatory experiments, successful practices and lessons from AI pilots across countries.
- Initiatives such as Project Agorá, involving central banks and private-sector participants including SWIFT, demonstrate the potential for collaborative experimentation in financial technology.
- Project Dunbar, involving the central banks of Singapore, Australia, Malaysia and South Africa, demonstrates how countries can jointly develop platforms for central bank digital currencies.
- Experiences from AI applications in India’s Unified Payments Interface (UPI) could similarly contribute to international regulatory learning.
3. Proportionate and Inclusive Standards
- Global standards should reflect differences in the economic structures, technological capabilities, regulatory capacities and levels of AI adoption across countries.
- Governance should therefore combine greater representation with proportional regulation, rather than imposing identical rules on economies with vastly different circumstances.
- The IIRD could provide a formal channel for emerging economies to contribute to institutions such as the FSB and Basel Committee, as well as emerging climate and frontier-AI governance mechanisms.
Proposed Institutional Design
- The IIRD could be established in New Delhi, leveraging India’s technological capabilities, regulatory experience and position as a bridge between advanced and developing economies.
- However, it should not be owned exclusively by BRICS; instead, it should operate as an open and globally representative institution.
- Membership could include the G20, Organisation for Economic Co-operation and Development (OECD), multilateral development banks and FSB, among others.
- Funding could combine public, private and multilateral sources, with the New Development Bank (NDB) potentially contributing.
- The institution should complement existing bodies rather than compete for their mandates.
Potential Contribution to Global Governance
- The IIRD could generate shared research and early-warning systems for the transmission of AI risks across financial and climate systems.
- It could facilitate continuous exchange of regulatory practices instead of relying only on periodic international declarations.
- It could help develop mutually recognised and proportionate standards and feed them into existing institutions such as the FSB and Basel Committee.
- Over time, the IIRD could serve as a precursor to a dedicated global frontier-AI governance institution.
India’s Proposed Role
- India could use its BRICS chairship to propose a working group on the IIRD, chaired by India but open to non-BRICS members.
- The group could prepare an IIRD charter for consideration at the 2027 BRICS Summit and simultaneously present it through the G20 finance track.
- Institutionalising the initiative through a formal communiqué would help prevent it from remaining merely a summit-level declaration.
- Such an approach would build on India’s emphasis on inclusive global governance and Global South representation.
The Larger Governance Challenge
- The Bretton Woods institutions, created in the post-World War II era, were largely designed by the United States and Europe for a global economy very different from today's.
- Contemporary AI governance is increasingly being shaped by a small number of governments and technology companies, creating the risk of another concentration of rule-making power.
- Countries whose populations will constitute some of the largest groups of AI users and whose citizens may face significant AI-related vulnerabilities must therefore become co-creators rather than passive recipients of global rules.
- India’s common-law tradition, technological capabilities and Global South convening role provide an opportunity to promote a more representative AI governance architecture.
