As a prelude to framing norms for use of artificial intelligence (AIL) and machine learning (ML) in the financial market, SEBI has directed mutual funds to send a detailed report on such technologies currently used by them.

In a circular issued on Thursday, SEBI said there has been an increase in the use of AI and ML with product offerings such as robo-advisors by market intermediaries and participants.

SEBI is conducting a survey and creating an inventory of the AI and ML landscape in the Indian financial markets to gain in-depth understanding of the adoption of such technologies in the markets and ensure preparedness for any policies that may arise in the future, it said.

With effect from June quarter, registered mutual funds using AI- and ML-based applications or systems should make submissions on its usage every quarter within 15 calendar days from the expiry of the quarter to AMFI.

AMFI to consolidate report

While maintaining the confidentiality of the information received from mutual funds, AMFI shall consolidate the information and submit to SEBI within 30 calendar days of the expiry of the quarter, starting from quarter ending June 2019, it said.

As most of these systems are black boxes and their behaviour cannot be easily quantified, SEBI said it is imperative to ensure that any advertised financial benefit owing to these technologies should not constitute misrepresentation.

SEBI has told mutual funds to send details of the computer applications and systems that are offered to investors or used internally by them to facilitate investing, trading, disseminate investment strategies and advice, besides carrying out compliance, operations and other activities.

In order to make the scope of this circular inclusive of various AI and ML technologies in use, the scope also covers fintech and reg-tech (management of regulatory process through technology) initiatives undertaken by market participants that involves AI and ML, it said.