Mkt regulator Sebi mulls action for lapses in Artificial intelligence usage

Proposals aimed at ensuring market players behave responsibly

The Securities and Exchange Board of India (Sebi) on Wednesday proposed norms to specify responsibilities on its registered entities like mutual funds, stock brokers and market infrastructure institutions (MIIs) for the use of artificial intelligence (AI) and machine learning (ML) tools.

 

Under the proposed norms, the market regulator aims to bring the usage under regulatory purview and define responsibilities on securities, privacy, investor data, and action in case of violations.

 

In a consultation paper floated on Wednesday, Sebi has proposed amendments in the norms which will allow it to act in case of such lapses.

 

“There is also a pressing need to assign responsibility on the MIIs, intermediaries and persons regulated by Sebi that use AI/ML, in the conduct of their business and related activities or while servicing their clients so as to bring in more seriousness to such users while deploying AI/ML tools and at the same time ensure investors’ protection,” notes the discussion paper.

 

 

“The board may, in case of violation of the provisions of sub-regulation (1), take such action as it may deem fit including action under Chapter V of these regulations,” it added.

 

Earlier in 2019, Sebi had issued several circulars specifying the reporting requirements of AI and ML apps and tools used by stock brokers, exchanges and asset management companies, among others.

 

The proposals imply that even in case of use of third-party technology service providers, the entity will be solely responsible for privacy of the investors and the output arising from the usage, along with the compliance of other applicable laws.

 

Sebi has also defined “artificial intelligence tools” for ironing out any issues in the norms.

 

“AI tools may include any application or software programme or executable system or a combination thereof, offered to investors/stakeholders or used internally to facilitate trading and settlement, carry out its (entity’s) activities, including for compliance requirements. And, the same is portrayed as part of the public product offering or under usage for compliance or management or other business purposes,” notes the paper.

 

The market regulator has highlighted the rise of AI in the financial market for market analysis, stock selection, investment strategies and AI-prompted trading.

 

Sebi has sought public comments on the proposals by November 28. 

Regulatory eye

 

> Sebi has defined artificial intelligence tools to remove ambiguity

> Proposed amendments to bring more responsibility on market entities using AI internally or for clients

> Sebi may take action in cases of lapses, according to the norms

> Sebi had earlier mandated reporting of such AI/ML tools used by intermediaries

> Norms for reporting were brought in 2019