SEBI Proposes Mandatory AI Disclosure for Investment Advisors

The Securities and Exchange Board of India (SEBI) has sought to mandate investment advisors and research analysts to make a complete disclosure of the extent of their use of AI tools to clients.

Such disclosure is expected to help clients make informed decisions about whether to continue to avail of the services of the investment advisor or research analyst.

In a consultation paper dated August 6, SEBI acknowledges that AI tools like OpenAI’s ChatGPT and Google’s Gemini are valuable for summarising and analysing data and enhancing efficiency. However, these tools may not fully protect sensitive data shared during interactions, potentially leading to data security concerns.

While AI tools can significantly aid investment advisors and research analysts, they may not always generate outputs that reflect a deep understanding of complex, client-specific requirements. Additionally, AI tools may not disclose whether risk profiling and suitability requirements have been met. Given that advice or services based on AI tools impact clients’ investment decisions, SEBI emphasises that the responsibility for data security and regulatory compliance remains with the investment advisor or research analyst, regardless of their use of AI tools.

The other proposals contained in SEBI’s consultation paper pertain to easing eligibility criteria for investment advisors and research analysts, providing exemption to proxy advisors from the RAASB (Research Analyst Administration and Supervisory Body) framework, and so on. Public comments on these proposals have been sought by August 26.