SEBI Releases Paper on Accountability for AI Use by Market Institutions

On November 13, 2024, The capital market regulator, the Securities and Exchange Board of India (SEBI) proposed that all SEBI-regulated entities using artificial Intelligence (AI) must be fully responsible for all outcomes of its use, regardless of the extent of the AI usage.

SEBI Enhancing Investor Protection 

Lately, the use of AI/ML systems and tools is growing, particularly in financial markets, helping stakeholders make informed decisions. These technologies are becoming increasingly important in market analysis, stock selection, investment strategies, and portfolio management.

SEBI’s press release highlighted that while AI-driven trading and operations, including compliance mechanisms, offer inherent benefits, it is crucial to ensure investor protection when using these tools.

SEBI has already mandated reporting requirements for the use of AI/ML systems through its circulars. There is now a need to hold Market Infrastructure Institutions, intermediaries, and SEBI-regulated entities accountable for their use of AI/ML in business operations.

SEBI invites public comments on proposed changes related to the use of artificial intelligence tools. Suggestions can be submitted by November 28, 2024.

SEBI’s Reporting Requirements for AI/ML Systems

SEBI has specified reporting requirements for AI and Machine Learning applications and systems used by various market participants. These include stock brokers and depository participants, through a circular issued on January 4, 2019.

 Market Infrastructure Institutions (MIIs), such as stock exchanges, depositories, and clearing corporations, through a circular issued on January 31, 2019; and mutual funds, asset management companies, trustee companies, and boards of trustees of mutual funds, through a circular issued on May 9, 2019. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.