What is the story
The Securities and Exchange Commission of India (SEBI) proposes a set of guidelines for the responsible use of artificial intelligence (AI) and machine learning (ML) in the securities market. Regulators also propose a “regulatory light” framework for using AI/ML in the securities market for purposes other than business operations that directly affect customers.
The proposed guidelines aim to protect investors and ensure market integrity
The proposed guidelines by SEBI aim to maximize profits while minimizing the potential risks of using AI/ML-based applications in the securities market. Sebi is now about ensuring investors' protection, market integrity and financial stability. In the current consultation, market participants primarily use AI/ML for advisory services, risk management, client identification and monitoring, monitoring purposes, pattern recognition and internal compliance purposes.
Responsibility management for AI/ML systems is important: SEBI
Sebi emphasizes the importance of responsible management of AI/ML systems, taking into account the possibility of creating or exacerbating certain risks. These risks can affect the efficiency of financial markets and can have a negative impact on investors. To address this, SEBI proposed reasonable procedures and high-level principles to guide market participants to establish management systems and control systems for supervising and managing the use of AI/ML applications or tools.
The working group recommends establishing an internal monitoring team
The working group made up of SEBI suggests that market participants using the AI/ML model should have internal teams with the necessary skills and experience. This team is responsible for monitoring the performance, effectiveness and security of algorithms deployed throughout the lifecycle. It also explains the interpretability of the model as part of its proposal to ensure auditability and regulate AI/ML in the securities market.
Participants must disclose their use of the AI/ML model to their customers
The Working Group also recommends that market participants disclose this information to their respective customers that they use AI/ML models to operate their business. This is to promote transparency and accountability. Furthermore, it has been suggested that these participants need to continuously properly test and monitor AI/ML-based models. Testing should be performed in an environment isolated from Live 1 prior to deployment, ensuring the expected behavior of these models in stress-free and stress-free market conditions.
