Regulated Entities Responsible for Output of AI Usage: SEBI

As per recently notified amendments, persons regulated by the Securities and Exchange Board of India (SEBI) who use artificial intelligence (AI) and machine learning (ML) tools and techniques will be responsible for the privacy of investor data and the output of such AI/ML usage.

Though SEBI has already mandated reporting requirements with respect to the usage of AI/ML systems, a need was felt to assign responsibility to market infrastructure institutions (MIIs) and persons regulated by SEBI that use AI/ML, in the conduct of their business and related activities or while servicing their clients. This was to promote greater accountability among such users when deploying AI/ML tools and also ensure investors’ protection.  

After a consultation paper in this regard was unveiled in November 2024, the proposal to assign responsibility for the use of AI tools was approved at the 208^th meeting of the SEBI Board the following month. Thereafter, on February 10, 2025, the Board notified the SEBI (Intermediaries) (Amendment) Regulations, 2025 (Intermediaries Amendment Regulations), the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2025 (SECC Amendment Regulations), and the SEBI (Depositories and Participants) (Amendment) Regulations, 2025 (DP Amendment Regulations).

According to the new amendments, persons regulated by the Board, recognised stock exchanges, recognised clearing corporations, or depositories which use AI/ML tools and techniques, either designed by them or procured from third-party technology service providers, irrespective of the scale and scenario of adoption of such tools for conducting their business and servicing their investors/clients/constituents, shall be solely responsible:

• for the privacy, security and integrity of investors’ and stakeholders’ data including data maintained by them in a fiduciary capacity throughout the processes involved;
• for the output arising from the usage of such tools and techniques they rely upon or deal with; and
• for compliance with applicable laws in force.

The other changes brought in by the DP Amendment Regulations concern the timeline for payment of annual fees, interest applicable on non-payment of annual fees and annual charges by depositories, etc.

While the Intermediaries Amendment Regulations and the SECC Amendment Regulations came into force on the date of their publication in the Official Gazette, i.e., February 10, 2025, the DP Amendment Regulations will come into effect on April 1, 2025.

Additionally, the Board has notified the SEBI (Investor Charter) (Amendment) Regulations, 2025, to ensure compliance with the Investor Charter by stock brokers, asset management companies, investment advisors, research analysts, etc., adding enabling provisions in 17 SEBI Regulations.