SEBI Makes Intermediaries Fully Liable for AI Tools' Output and Data Privacy in Investment Operations Under 2008 Regulations

SEBI amended the Intermediaries Regulations 2008 by introducing Chapter IIIB concerning artificial intelligence usage. The amendment establishes that regulated entities utilizing AI and machine learning tools, whether proprietary or third-party, are solely accountable for data privacy, security, and integrity of investors' information. Entities bear complete responsibility for AI-generated outputs and regulatory compliance. The regulation encompasses all AI applications used for investment, trading, strategy dissemination, or internal operations. SEBI reserves the right to take punitive action under Chapter V for violations. The amendment defines AI tools as any software, program, or system used for investment-related activities or compliance purposes, applying to all SEBI-regulated persons as defined in regulation 16A. .....

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