India: SEBI Proposes AI Regulations for Financial Markets Amid Industry Pushback

In this article:

SEBI’s consultation paper marks a pivotal moment in the intersection of artificial intelligence (AI), machine learning (ML), and financial market regulation. The proposed framework reflects SEBI’s forward-thinking approach to address key challenges like data integrity and algorithmic transparency, ensuring investor protection and market stability while fostering innovation.

SEBI’s Key Proposals:

1. Stringent Data Privacy Standards: Ensuring robust mechanisms to protect sensitive financial and client data.
2. Transparency in AI Operations: Demanding interpretability of AI systems to reduce “black box” risks.
3. Operational Liability: Mandating that regulated entities (REs) assume full responsibility for the consequences of AI-driven outputs.

This roadmap demonstrates SEBI’s focus on proactive governance, balancing technological advancement with investor trust and market integrity.

Industry Pushback from ASIFMA:

The Asia Securities Industry & Financial Markets Association (ASIFMA) has raised significant concerns:

• One-Size-Fits-All Concerns: ASIFMA argues the proposed regulations may stifle innovation by not accounting for the varied applications of AI in financial markets.
• Liability Distribution: They advocate for a shared responsibility model that considers the complexity of the AI lifecycle, instead of placing sole accountability on financial institutions.
• Precision in Regulation: Suggesting tailored policies to reflect the intricacies of AI adoption across different market entities.