Reporting for Artificial Intelligence (AI) and Machine Learning (ML) applications and systems offered and used by Mutual Funds
Summary
SEBI mandates Mutual Funds to report the usage of Artificial Intelligence and Machine Learning applications through a quarterly submission process. The reporting obligation requires funds to complete a specific form and submit it to AMFI within 15 days of each quarter's end, starting from June 2019. AMFI is responsible for consolidating this data and forwarding it to SEBI within 30 days of the quarter's expiry while maintaining confidentiality.
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There is increasing usage of AI (Artificial Intelligence) and ML (Machine Learning) 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.
As most AI / ML systems are black boxes and their behavior cannot be easily quantified, it is imperative to ensure that any advertised financial benefit owing to these technologies in investor facing financial products offered by intermediaries should not constitute to misrepresentation.
Any set of applications / software / programs / executable / systems (computer systems) – cumulatively called application and systems, a. that are offered to investors (individuals and institutions) or used internally by Mutual Funds to facilitate investing and trading or for any other purpose, OR b. to disseminate investments strategies and advice, OR c. to carry out compliance / operations / activities, where AI / ML is portrayed as a part of the public product offering or under usage for compliance or management purposes, is included in the scope of this circular.
Technologies that are considered to be categorized as AI and ML technologies in the scope of this circular, are explained in Annexure B.
All registered Mutual Funds offering or using applications or systems as defined in Annexure B, should participate in the reporting process by completing the AI / ML reporting form (see Annexure A).
With effect from quarter ending June 2019, registered Mutual Funds using AI / ML based application or system as defined in Annexure B, are required to fill in the form (Annexure A) and make submissions on quarterly basis within 15 calendar days of the expiry of the quarter to AMFI.
AMFI shall 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 shall ensure that confidentiality is maintained regarding the information received by them from Mutual Funds.
This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Source: SecMarx — Reporting for Artificial Intelligence (AI) and Machine Learning (ML) applications and systems offered and used by Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.