Sebi proposes 5-point AI rulebook for securities market. Check details

Sebi has released a consultation paper proposing a 5-point regulatory framework for the responsible use of AI and ML in India's securities markets. The guidelines focus on governance, transparency, fairness, data security, and risk controls, aiming to balance innovation with investor protection.
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Here are 5 guiding principles:
1) Model governance
2) Mandatory disclosure
3) Robust testing & monitoring norms
4) Fairness and bias
5) Data security
Securities and Exchange Board of India (Sebi) is considering preparing guidelines for the responsible usage of Artificial Intelligence or Machine Learning in securities markets. The market regulator on Friday released a consultation paper seeking public feedback on five broad-based guiding principles that could be part of the regulatory framework.With AI/ML use growing across exchanges, brokers, and mutual funds, Sebi aims to strike a balance between innovation and regulation. The proposed framework covers governance, data security, bias prevention, investor protection, and risk controls.The last date to send comments/suggestions is July 11.Earlier, Sebi constituted a working group to study Indian, global best practices in AI/ML, mandating it to prepare guidelines for the usage of AI/ML applications. The working group was also tasked with providing recommendations to address concerns and issues related to the use of AI/ML applications.Also Read: Sebi eases delisting norms for PSUs with over 90% government holding Market participants must set up internal teams with the technical expertise to monitor AI/ML models, document model development, and handle exceptions. Senior management will be held accountable for the entire AI lifecycle, including oversight of third-party vendors.If AI/ML tools directly impact investors—like in algo trading or advisory services—firms must clearly disclose their use, including model purpose, risks, accuracy, and limitations. Language must be simple and client-friendly.Sebi proposes rigorous model testing in simulated environments before live deployment, and ongoing monitoring thereafter. Firms must retain data logs and documentation for a minimum of five years to ensure explainability and traceability.To prevent discrimination, Sebi suggests using diverse, high-quality datasets and training staff to identify bias.Companies must follow strong data governance, privacy, and cybersecurity protocols.Also Read: Sebi board meeting: Regulator approves PSU delisting, IPO reforms, dematerialisation of Securities. 10 key takeaways Sebi has suggested a lighter regulatory approach for internal-use models (e.g., surveillance), while models affecting clients would face stricter controls.

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