SEBI Proposes Holding Market Infrastructure Institutions and Intermediaries Accountable for AI-Related Consequences

Regulator Introduces New Guidelines for AI Usage in Investor Services

The Securities and Exchange Board of India (SEBI) has proposed holding market infrastructure institutions and intermediaries accountable for any consequences arising from the 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.

Key Points of the Proposal

• SEBI has introduced a new consultation paper outlining the regulator’s stance on AI usage in investor services and compliance operations.
• The entity should be accountable for any actions taken based on AI outputs, according to the proposal.
• Recognizing the need for intermediaries to embrace AI tools, SEBI also emphasizes the importance of protecting investors with the usage of such tools.
• The regulator has mandated reporting on AI usage for entities like stock brokers, depositories, and mutual funds in the past.
• Now, SEBI proposes that all Sebi-regulated entities using AI in any capacity must be fully responsible for all outcomes of its AI use, regardless of the extent of their AI usage.

Full Responsibility for AI-Related Consequences

"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."

Public Comments Sought

SEBI has sought public comments on the proposal until November 28.