AI Regulation: SEBI Mulls Accountability Framework For Use By Market Institutions
Artificial intelligence is being increasingly used in investor services and compliance operations.
The Securities and Exchange Board of India on Wednesday proposed holding market infrastructure institutions and intermediaries accountable for any consequences arising from their use of artificial intelligence (AI) tools in operations or client services. This includes ensuring data privacy, security, and integrity, particularly when handling sensitive investor information.
Additionally, the entity should also be accountable for any actions taken based on AI outputs, SEBI said in its consultation paper.
AI is being increasingly used in investor services and compliance operations. The usage is enabling stakeholders in making informed decisions and thus playing increasingly significant role in market analysis, stock selection, investment strategies and in building a portfolio in their invested securities.
However, while recognising the need for intermediaries to embrace such latest techniques and AI tools, it is equally important to ensure the protection of investors with the usage of such tool, Sebi said.
Recognising both the advantages of AI -- like enhanced efficiency, accuracy, and risk management -- and the need for investor protection, SEBI has earlier mandated reporting on AI usage for entities like stock brokers, depositories, and mutual funds.
Now, the regulator, in its consultation paper, has proposed that all Sebi regulated entities that use AI in any capacity must be fully responsible for all outcomes of its AI use, regardless of the extent of their AI usage.
"Every person regulated by SEBI that uses such artificial intelligence tools and techniques while conducting its activities in the securities markets and for servicing its clients, regardless of the scope and size of adoption of such tools, shall apart from complying with all applicable laws in force be solely responsible for all the consequences of such use including ensuring the privacy, security and integrity of the investors' and stakeholders' data especially the data maintained by it in a fiduciary capacity, throughout the processes involved," the regulator said.
"...and shall be responsible if the output arising from the usage of such tools and techniques is relied upon or dealt with," SEBI said.
The SEBI has sought public comments till Nov. 28 on the proposal.
