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The Complete Guide to AI Law & Regulation in Nepal: 2026 Compliance Handbook
AI Law Nepal. Nepal stands at a critical juncture in its digital transformation. With the August 2025 approval of the National AI Policy 2082 and a readiness ranking of 150th out of 193 countries, Nepali businesses face a urgent question: how to comply with AI regulations that are still taking shape? This guide bridges that gap, delivering the most comprehensive legal framework analysis available for Nepal’s emerging AI economy.
Understanding Nepal’s AI Legal Foundation
The Electronic Transaction Act, 2063 (2007): Nepal’s De Facto AI Law
Before the 2025 AI Policy, Nepal’s primary digital governance tool was the Electronic Transaction Act, 2063. This law unexpectedly became the foundation for AI regulation through three critical provisions:
- Digital Signature Recognition (Section 4): Any AI system processing or automating contract signatures must use licensed Certifying Authorities approved by the Controller of Certifying Authorities. As of January 2026, only 12 Nepali CAs are authorized, creating a bottleneck for SaaS AI providers.
- Cybercrime Liability (Section 11): AI-generated content that “dishonestly misrepresents facts” carries penalties up to NPR 200,000 fines and 3-year imprisonment. This directly impacts generative AI deployments in marketing, legal tech, and media.
- IT Tribunal Jurisdiction: Disputes involving AI systems fall under Nepal’s specialized IT Tribunal, which has heard only 47 technology cases since 2007—indicating judicial capacity constraints.
Practical Impact: A Kathmandu-based fintech using AI for loan approvals must ensure its digital signature workflow uses an authorized CA and document how algorithms avoid “dishonest misrepresentation” under Section 11.
National AI Policy 2082 (2025): The New Paradigm
Approved by Nepal’s Cabinet on August 16, 2025, this 19-page policy introduces institutional structures that fundamentally change compliance requirements:
| Institution | Formation Deadline | Mandate | Compliance Impact |
|---|---|---|---|
| AI Regulation Council | Q1 2026 (Feb 2026) | Cross-sector standards, import/export controls | Mandatory registration for AI vendors |
| National AI Centre | Q1 2026 (Feb 2026) | R&D coordination, National AI Index | Annual impact assessments required |
| Sectoral AI Committees | Q2 2026 (June 2026) | Healthcare, agriculture, public admin rules | Industry-specific compliance protocols |
Key Policy Mandates for Businesses:
- Data Localization: All government AI systems must store data in “international-level data centers” located within Nepal’s borders. Private sector handling citizen data follows similar guidelines.
- Algorithmic Transparency: “High-risk” AI (healthcare, policing, finance) requires “explainability mechanisms” and human-in-the-loop protocols.
- AI Content Labeling: Mandatory disclosure of AI-generated content in advertising, media, and public communications.
Sector-Specific AI Regulations in Nepal
Financial Services: Nepal Rastra Bank’s AI Guidelines
In 2023, Nepal Rastra Bank (NRB) issued “Artificial Intelligence Guidelines” applicable to all licensed banks and financial institutions. These remain Nepal’s most enforceable AI regulations:
Compliance Requirements:
- Model Risk Management: Banks must maintain an AI Model Inventory documenting training data sources, performance metrics, and bias testing results.
- Credit Scoring Transparency: AI-driven loan decisions require “adverse action notices” explaining denial reasons in plain Nepali—mirroring US FCRA requirements but with local language mandates.
- Fraud Detection Oversight: Automated fraud alerts must be reviewed by human officers within 24 hours before account freezing.
Enforcement Reality: NRB fined two commercial banks NPR 5 million each in Q3 2025 for deploying chatbots without proper disclosure, signaling strict interpretation.
Healthcare AI: Emerging Compliance Standards
While no standalone healthcare AI law exists, the National AI Policy mandates sector-specific guidelines by June 2026. Forward-looking hospitals should prepare for:
- Clinical Validation: AI diagnostic tools must undergo validation by Nepal Health Research Council (NHRC), a 6-12 month process.
- Telemedicine Integration: AI-powered telehealth platforms must comply with Telemedicine Guidelines 2022 and upcoming AI addendums.
- Data Protection: Patient data used in AI training requires consent under Nepal’s Health Information Privacy Code (draft stage, expected 2027).
Case Study: Patan Hospital’s AI radiology pilot in 2024 was suspended pending NHRC validation, demonstrating enforcement readiness.
Public Administration: Smart Governance Rules
The National AI Portal (planned launch: March 2026) will centralize government AI deployments. Key compliance points:
- Procurement Standards: All government AI purchases over NPR 10 million require Algorithmic Impact Assessments published publicly.
- Citizen Redress: Citizens can challenge AI decisions through a dedicated AI Grievance Portal, with 30-day resolution mandates.
- Security Clearance: AI systems processing citizen data require National Cyber Security Policy 2023 Level 3 certification.
Cross-Border AI Deployment: Nepal’s Unique Challenges
Nepal’s geography creates distinct compliance issues for AI companies serving Indian and Chinese markets:
Data Transfer Regulations
The AI Policy requires “adequacy decisions” for cross-border data transfers—similar to GDPR—but no such agreements exist with neighboring countries as of January 2026.
Workaround Strategy: Use Standard Contractual Clauses approved by the Ministry of Communication and Information Technology (MoCIT). Draft templates are expected Q3 2026.
Model Import Controls
AI models trained on foreign datasets must undergo “Nepal Adaptation Testing” at the National AI Centre to ensure cultural and linguistic appropriateness. This 30-day review process examines:
- Bias against Nepali ethnic groups (125+ recognized communities)
- Language support for Devanagari and Nepal Bhasa
- Compliance with Nepal’s sovereignty clauses in technology contracts
Practical Compliance Checklist for Nepali Businesses
Pre-Deployment Phase (30-60 Days)
☐ Register with AI Regulation Council (once operational in Feb 2026)
☐ Conduct AI Impact Assessment using MoCIT’s template (expected release: Jan 2026)
☐ Establish AI Governance Committee with CTO, Legal Head, and Ethics Officer
☐ Audit Training Data for bias against protected Nepali characteristics (caste, ethnicity, gender)
☐ Secure Cyber Security Level 2+ Certification under National Cyber Security Policy 2023
Operational Phase (Ongoing)
☐ Maintain AI System Log documenting all automated decisions with “human review” timestamps
☐ Publish Public AI Notice on website disclosing AI use in consumer-facing services
☐ Quarterly Bias Testing using Nepal-specific datasets (e.g., Census 2021 demographics)
☐ Vendor Due Diligence for foreign AI providers: require Nepal-specific warranties and local representative designation
☐ Incident Reporting: Report AI failures affecting >100 users to AI Regulation Council within 72 hours
Contractual Safeguards
Include these clauses in AI procurement contracts:
- Training Data Provenance: Vendor warrants data compliance with Nepal’s Copyright Act 2002 and lacks AI-specific provisions
- Liability Cap: Align with ETA 2063 penalties (NPR 200,000) plus actual damages
- Escrow Requirements: Deposit source code with Nepal’s Controller of Certifying Authorities
- Local Representation: Mandate Nepal-registered entity for service of process
Enforcement & Liability: What Happens When AI Goes Wrong?
Current Judicial Precedent (2020-2025)
Nepal’s IT Tribunal has decided zero AI-specific cases, creating legal uncertainty. However, analogous rulings provide guidance:
- 2023 Case: Siddhartha Bank v. IT Tribunal established that automated system errors are “organizational failures,” not force majeure—implying AI errors trigger corporate liability.
- 2024 Ruling: Nepal’s Supreme Court (writ petition 2024-075) held that lack of algorithmic transparency violates constitutional due process rights in government service delivery.
Penalties & Fines Structure
| Violation Type | Legal Basis | Maximum Penalty | Enforcement Body |
|---|---|---|---|
| Unauthorized AI data processing | ETA 2063, Sec 11 | NPR 200,000 + 3 years jail | IT Tribunal |
| Government AI procurement breach | Public Procurement Act 2063 | Blacklisting + 10% contract value fine | Public Procurement Monitoring Office |
| Financial AI model non-compliance | NRB AI Guidelines | NPR 5 million per violation | Nepal Rastra Bank |
| Healthcare AI without validation | NHRC Act | Service suspension + criminal negligence charges | Health Ministry |
Critical Gap: No specific AI liability insurance products exist in Nepal as of 2026, forcing companies to rely on general E&O policies with AI exclusions.
Future Roadmap: 2026-2030 Implementation Timeline
Q1 2026: AI Regulation Council & National AI Centre operational
Q2 2026: Sectoral guidelines (health, agriculture, education) published
Q3 2026: Information Technology Bill 2026 introduces explicit AI liability chapter
Q4 2026: First National AI Index released, measuring sectoral adoption
2027: Data Protection Act expected, replacing ETA 2063 for AI governance
2028: Regional AI governance framework with SAARC countries
2030: Nepal aims for top-100 AI readiness ranking
Frequently Asked Questions
Q: Is there a law specifically regulating AI in Nepal?
A: No standalone AI law exists yet. Nepal regulates AI through the National AI Policy 2082 (2025), Electronic Transaction Act 2063, and sector-specific guidelines. The Information Technology Bill 2026 will introduce the first AI-specific legal provisions.
Q: What is the penalty for unauthorized AI use in Nepal?
A: Under ETA 2063, unauthorized AI data processing or generating misleading content carries fines up to NPR 200,000 and imprisonment up to 3 years. Financial institutions face up to NPR 5 million fines under Nepal Rastra Bank guidelines.
Q: Do foreign AI companies need to register in Nepal?
A: Yes. The AI Regulation Council will require all AI vendors serving Nepali users to register by Q2 2026. Foreign companies must designate a local representative and undergo Nepal Adaptation Testing for cultural appropriateness.
Q: How does Nepal’s AI policy compare to India’s?
A: Nepal’s policy is more centralized, creating a single AI Regulation Council versus India’s multi-agency approach. Nepal emphasizes data localization and cultural adaptation testing, while India focuses on self-regulation through the INDIAai framework.
Go through the following.
- Link to “Electronic Transaction Act 2063 full text”
- Link to “Nepal Rastra Bank AI Guidelines PDF“ for download
- Link to “National AI Policy 2082 Nepali version” for local audience
- Link to “IT Tribunal filing procedures“ for actionable next steps
Call-to-Action for Nepali Stakeholders
For Businesses: Contact the Ministry of Communication and Information Technology’s AI Policy Cell (policy@mocit.gov.np) to participate in the Q2 2026 stakeholder consultation on sectoral guidelines. Early engagement allows shaping of compliance rules.
For Legal Professionals: Join the Nepal Bar Association’s upcoming “AI Law Certification Program” launching March 2026, developed in partnership with the National AI Centre.
For Policymakers: Accelerate the Data Protection Act drafting to address the liability vacuum identified in this analysis. The current reliance on ETA 2063 creates enforcement ambiguity.
For International AI Vendors: Begin Nepal Adaptation Testing preparation now. The 30-day review process requires demonstrating bias testing against Nepal’s 125+ ethnic groups—start building representative datasets today.
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