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SEBI Issues Directive To Disclose All AI & ML-Based Tools Used By Mutual Funds

SEBI Issues Directive To Disclose All AI & ML-Based Tools Used By Mutual Funds


In the most recent circular by SEBI, it has asked the funding houses to provide various details about artificial intelligence and machine learning-based systems used by them on a quarterly basis.



SEBI noted that there has been an increased usage of AI and ML as product offerings by market intermediaries and participants. To keep a check on this and for surveillance purpose, SEBI announced that it will be conducting a survey to create an inventory of AI/ML landscape in the Indian financial markets.

As a part of this circular, SEBI has notified all registered Mutual Funds offerings to participate in the reporting process by filling out the AI/ML reporting form. It has to be done with effect from the quarter ending June 2019 and make a submission on a quarterly basis within 15 calendar days of the expiry of the quarter to Association of Mutual Funds in India (AMFI). AFMI will consolidate the information and submit to SEBI.

The idea behind this exercise is to gain an in-depth understanding of the adoption of these technologies and ensure preparedness for AI/ML policies that may arise in the future.  

It said that any set of applications or systems that are offered to investors or used internally by mutual funds to facilitate trading where AI or ML are portrayed as a part of public product offering and used for compliance and management purposes need to be reported.

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SEBI also said in its official circulation that most AI/ML systems are black boxes and that their behaviour cannot be easily quantified. This step will, therefore, ensure that any advertised financial benefit owing to these technologies in investor facing financial products offered by intermediaries should not constitute to misrepresentation.

Earlier this year SEBI had issued a directive to disclose all AI-based tools used in the stock market. It had said that applications based on artificial intelligence and machine learning would have to make quarterly disclosures on their compliance with the cybersecurity framework.


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