Who's Watching the Machines? IOSCO's Role in Regulating AI in Global Finance

Abstract

Integrating artificial intelligence (AI) into global financial markets redefines capital allocation, investment management, and risk evaluation processes. However, these innovations bring significant legal and regulatory challenges, including accountability for AI errors, transparency issues in machine learning frameworks, cross-border data governance, and regulatory inconsistencies. These issues are particularly challenging in international financial markets, where differences in jurisdiction amplify legal loopholes, threatening market integrity and overall systemic stability. To resolve this gap, this paper examines the role of the International Organization of Securities Commissions (IOSCO) in shaping international legal standards for AI governance in financial markets. As a global standard-setter, IOSCO employs measures such as principles and guidelines-soft law instruments-to support collaboration and regulatory convergence. However, the reliance on soft law raises concerns about inconsistent adoption and enforcement across jurisdictions. Using the role of international organizations in international law and practical perspectives, this paper situates the discussion within the broader global governance structure. It explores IOSCO's interactions with other international organizations, including the OECD, FATF, and the UN, to address the complexities of AI regulation. The findings highlight the need for enhanced collaboration, capacity building, and accountability mechanisms to establish a robust international legal framework capable of addressing the multifaceted challenges of AI in financial markets.

Keywords: AI, Global Financial Market, IOSCO, International Law