Microsoft's president has urged Australia and other countries to regulate facial recognition before democratic freedoms are impacted.

Brad Smith said a global conversation was needed to discuss issues such as bias and discrimination, commercial privacy and a potential impact on democratic freedoms if facial recognition is misused and abused.

At the moment, market leaders such as Microsoft and NEC are making the decisions on where to draw the line on each issue.

"What we want to avoid is a commercial race to the bottom," he told a business conference in Sydney on Thursday.

"We don't want a race to the bottom where people just scoop up deals based on technology that is not ready, with customers in countries that may not live up to human rights and democratic ideals, and see the market go in that direction.

Mr Smith said governments have an "increasingly important" role to play in new technology such as AI.

"We are the first people in the history of humanity who will give this power to machines, he said.

"So, for the future of humanity, it is essential we think this through."