SEBI makes it mandatory for Mutual Funds to report Artificial Intelligence (AI) and Machine Learning (ML) applications and systems offered and used by them to AMFI; effective June 2019

The Securities and Exchange Board of India (“SEBI”) has in a circular dated 9th May, 2019 issued procedure of Reporting for Artificial Intelligence (“AI”) and Machine Learning (“ML”) applications and systems offered and used by Mutual Funds; effective June, 2019. The technologies that are considered to be categorized as AI and ML technologies in the scope of this circular is enumerated in Annexure B (of the hyperlinked document below).

Background:

As there is an increasing  usage of AI and ML as product offerings by market intermediaries and participants (e.g.: “robo advisors”) in investor and consumer facing products, SEBI is conducting a  survey  and  creating  an  inventory  of  the  AI  /  ML  landscape  in  the  Indian financial  markets  to  gain  an  in-depth  understanding  of  the  adoption  of  such technologies  in  the  markets  and  to  ensure  preparedness  for  any  AI  /  ML policies that may arise in the future.

The behaviour of most AI / ML systems is unknown cannot be easily quantified, thus making it necessary to ensure that any advertised financial benefit owing to these technologies in investor   facing financial products offered by intermediaries is monitored and there is no misrepresentation.

Regulatory Requirements:

All registered Mutual Funds offering or using AI and ML application, or systems as defined in Annexure B, will have to participate in the reporting process by:

  • Filling the AI / ML reporting form in Annexure A (of the hyperlinked document below) and
  • Making submissions on quarterly basis within 15 calendar days of the expiry of the quarter to Association of Mutual Funds in India (“AMFI”) with effect from quarter ending June 2019.

AMFI will then consolidate the information on AI / ML applications and systems reported by Mutual Funds on quarterly basis and submit to SEBI at email id AIML_MF@sebi.gov.in within  30  calendar  days of the expiry of the quarter, starting from quarter ending June 2019. AMFI will also maintain confidentiality regarding the information received by Mutual Funds.

SourceSecurities and Exchange Board of India

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