SEBI Eyes AI Accountability: Draft Guidelines Aim to Regulate AI/ML Use in Markets

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India’s capital markets regulator, the Securities and Exchange Board of India (SEBI), has released a consultation paper proposing a regulatory framework for the use of Artificial Intelligence (AI) and Machine Learning (ML) tools by market participants. The move comes amid growing reliance on AIdriven systems in trading, surveillance, and investor services.

Key Highlights:

Scope: The draft guidelines apply to Market Infrastructure Institutions (MIIs), stockbrokers, mutual funds, depository participants, and other SEBIregulated entities using AI/ML tools in operations or investorfacing products.
Responsibility: Entities will be held fully accountable for decisions made by AI systems, including those involving trading, compliance, and customer interaction.
Data Privacy & Security: Firms must ensure robust data governance, protect investor data, and maintain audit trails for AIgenerated outputs.
Regulatory Action: SEBI reserves the right to take action in case of misuse, negligence, or failure to comply with the proposed norms.
Transparency: Entities must disclose the use of AI/ML tools and submit periodic reports detailing their deployment, purpose, and safeguards.
Public Feedback: SEBI has invited comments from stakeholders to refine the framework before final implementation.

The consultation paper reflects SEBI’s intent to balance innovation with investor protection. As AI becomes more embedded in financial services, the regulator is looking to ensure that technology enhances—not undermines—market integrity.

Sources: Fortune India, SEBI Consultation Paper, India Corporate Law Blog