Sebi asks mutual funds to explain quarterly how they use AI in business

Sebi intends to create an inventory of the data to ensure preparedness if the need for policies in AI-based systems arises

Stepping up its surveillance on mutual funds, Sebi Thursday asked fund houses to provide various details about artificial intelligence and machine learning-based systems used by them on a quarterly basis.

As most AI and Machine Learning (ML) systems are "black boxes" and their behaviour cannot be easily quantified, Sebi said it was imperative to ensure that any advertised financial benefit owing to these technologies in investor facing financial products offered by intermediaries should not constitute to misrepresentation.

Fund houses are required to furnish the details about AI and ML-based applications and systems in a prescribed format from the quarter ending June 2019, to the Association of Mutual Funds in India (AMFI). It has to be submitted within 15 days from end of a quarter to the association.

AMFI would consolidate the information and submit the same within 30 calendar days from the end of a quarter to Sebi, as per a circular.

The watchdog is conducting a survey and creating an inventory of the AI/ML landscape in the Indian financial markets to gain an in-depth understanding of the adoption of such technologies and to ensure preparedness for any AI/ML policies that may arise in the future.

Any set of applications or systems that are offered to investors or used internally by mutual funds to facilitate trading among other purposes where Artificial Intelligence (AI) or ML are portrayed as a part of public product offering and used for compliance and management purposes need to reported, Sebi said.

Moreover, Fin-Tech and Reg-Tech initiatives undertaken by market participants that involve AI and ML should also be reported in the prescribed form.

Besides, Sebi has provided details about categories of systems that are considered to be AI and ML technologies.