The Securities and Exchange Board of India (SEBI) on November 13, 2024, issued a Consultation paper on “Proposed amendments with respect to assigning responsibility for the use of artificial intelligence tools by Market Infrastructure Institutions, Registered Intermediaries and other persons regulated by SEBI”.
This Consultation Paper solicits comments and inputs from the public on the proposed amendments to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 and the Securities and Exchange Board of India (Intermediaries) Regulations, 2008, with respect to assigning responsibility for the use of artificial intelligence(“AI”) tools by Market Infrastructure Institutions, Registered Intermediaries and other persons regulated by SEBI.
In view of the increased usage of AI and Machine Learning (“ML”) tools in investor facing products and in order to create an inventory of AI/ML landscape to gain an understanding of the adoption of such technologies in the securities Page 2 of 7 market and to also ensure preparedness for any AL/ML issues that may arise in the future, SEBI specified requirements for reporting of AI and Machine Learning (ML) application and systems offered and used by-
• Stock Brokers and Depository Participants - through issuance of a Circular dated January 4, 2019,
• MIIs (Stock Exchanges, Depositories and Clearing Corporation) - through the issuance of a Circular dated January 31, 2019, and
• Mutual Funds, Asset Management Companies, Trustee Companies, and Board of Trustees of Mutual Funds - through issuance of a Circular dated May 9, 2019
It is envisaged that 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 and shall be responsible if the output arising from the usage of such tools and techniques is relied upon or dealt with.
In view of the above, the following amendments are proposed-
• In the Securities and Exchange Board of India (Intermediaries) Regulations, 2008-after existing Chapter IIIA, Chapter IIB which states Usage of artificial intelligence tools has been proposed to be inserted.
• In the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 - after existing regulation 39A in Chapter VI (General Obligations), regulation 39B which states Usage of artificial intelligence tools regulation has been proposed to be inserted.
• In the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 - after existing regulation 82A in Chapter VII (inter alia dealing with obligations of depositories), regulation 82 B which states Usage of artificial intelligence tools has proposed to be inserted.
The comments are therefore sought from the public on the aforementioned proposal including on the suggested amendments to the Regulations mentioned above. The comments/suggestions in this regard may be submitted latest by November 28, 2024 through the link https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComm
