Context:
The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a structured framework to govern the responsible use of Artificial Intelligence (AI) and Machine Learning (ML) technologies in the Indian securities market. The proposals aim to safeguard investor interests, promote fairness, and ensure cybersecurity compliance amid rising adoption of AI/ML tools in trading, advisory, and surveillance.
Key Features of SEBI’s Five-Point Plan
- Model Governance
- Establish clear accountability for AI/ML model development, validation, and deployment.
- Mandate independent oversight and documentation to track model decisions and updates.
- Investor Protection & Disclosure
- Ensure transparency in use of AI/ML tools in client-facing services like robo-advisory.
- Require clear disclosures about AI-driven processes, including limitations and risks.
- Testing Framework
- Implement rigorous pre-deployment testing for accuracy, robustness, and reliability of AI/ML models.
- Emphasize back-testing, scenario analysis, and monitoring of outcomes to avoid systemic risks.
- Fairness & Bias
- Propose checks to prevent algorithmic bias in customer profiling or market strategies.
- Encourage adoption of ethical AI practices and inclusive datasets to maintain market integrity.
- Data Privacy & Cybersecurity
- Strengthen data protection norms in line with the Digital Personal Data Protection Act.
- Impose cybersecurity standards to secure sensitive financial and personal information used by AI/ML systems.
Background and Next Steps
- The proposals stem from a SEBI-constituted working group of AI/ML experts and industry stakeholders.
- The consultation paper, titled “Guidelines for Responsible Usage of AI/ML in the Indian Securities Market”, is open for public and industry feedback.
