SEBI’s circular on reporting for AI and ML applications and systems offered and used by mutual funds

Terms of use

Terms of Use

The use of this site and the content contained therein is governed by the Terms of Use. When you use this site you acknowledge that you have read the Terms of Use and that you accept and will be bound by the terms hereof and such terms as may be modified from time to time.

All text, graphics, audio, design and other works on the site are the copyrighted works of nasscom unless otherwise indicated. All rights reserved.
Content on the site is for personal use only and may be downloaded provided the material is kept intact and there is no violation of the copyrights, trademarks, and other proprietary rights. Any alteration of the material or use of the material contained in the site for any other purpose is a violation of the copyright of nasscom and / or its affiliates or associates or of its third-party information providers. This material cannot be copied, reproduced, republished, uploaded, posted, transmitted or distributed in any way for non-personal use without obtaining the prior permission from nasscom.
The nasscom Members login is for the reference of only registered nasscom Member Companies.
nasscom reserves the right to modify the terms of use of any service without any liability. nasscom reserves the right to take all measures necessary to prevent access to any service or termination of service if the terms of use are not complied with or are contravened or there is any violation of copyright, trademark or other proprietary right.
From time to time nasscom may supplement these terms of use with additional terms pertaining to specific content (additional terms). Such additional terms are hereby incorporated by reference into these Terms of Use.

Disclaimer

The Company information provided on the nasscom web site is as per data collected by companies. nasscom is not liable on the authenticity of such data.
nasscom has exercised due diligence in checking the correctness and authenticity of the information contained in the site, but nasscom or any of its affiliates or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this site. The information from or through this site is provided "as is" and all warranties express or implied of any kind, regarding any matter pertaining to any service or channel, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement are disclaimed. nasscom and its affiliates and associates shall not be liable, at any time, for any failure of performance, error, omission, interruption, deletion, defect, delay in operation or transmission, computer virus, communications line failure, theft or destruction or unauthorised access to, alteration of, or use of information contained on the site. No representations, warranties or guarantees whatsoever are made as to the accuracy, adequacy, reliability, completeness, suitability or applicability of the information to a particular situation.
nasscom or its affiliates or associates or its employees do not provide any judgments or warranty in respect of the authenticity or correctness of the content of other services or sites to which links are provided. A link to another service or site is not an endorsement of any products or services on such site or the site.
The content provided is for information purposes alone and does not substitute for specific advice whether investment, legal, taxation or otherwise. nasscom disclaims all liability for damages caused by use of content on the site.
All responsibility and liability for any damages caused by downloading of any data is disclaimed.
nasscom reserves the right to modify, suspend / cancel, or discontinue any or all sections, or service at any time without notice.

For any grievances under the Information Technology Act 2000, please get in touch with Grievance Officer, Mr. Anirban Mandal at data-query@nasscom.in.

New

See all

No notification found.

SEBI’s circular on reporting for AI and ML applications and systems offered and used by mutual funds

Komal Gupta

@Komal

May 10, 2019

Public Policy

1246

Policy Update

10.05.2019

SEBI’s circular on reporting for AI and ML applications and systems offered and used by mutual funds

Background

The Securities and Exchange Board of India (SEBI) has asked all mutual funds companies in India to report Artificial Intelligence (AI) and Machine Learning (ML) applications and systems offered to investors (individuals and institutions) or used internally by it to facilitate investing and trading or for any other purpose. The move is aimed at conducting a survey for 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 behaviour 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,” said SEBI in its circular dated 9 May addressed to all mutual funds, asset management companies, trustee companies, board of trustees of mutual funds and Association of Mutual Funds in India.

Key highlights of the circular

All registered mutual funds offering or using applications or systems should participate in the reporting process by completing the AI / ML reporting form.
With effect from quarter ending June 2019, these entities are required to fill in the form and make submissions on quarterly basis within 15 calendar days of the expiry of the quarter to AMFI.
Other than the basic details of the entity, the form also seeks details such as-

What claims have been made regarding AI and ML application / system?
How was the AI or ML project implemented?
Does the system disseminate investment or trading advice or strategies?
Is the application / system used in area of cyber security to detect attacks?
What safeguards are in place to prevent abnormal behaviour of the AI or ML application / System?

AMFI shall consolidate the information on AI / ML applications and systems reported by mutual funds on quarterly basis and submit to SEBI within 30 calendar days of the expiry of the quarter, starting from quarter ending June 2019.
SEBI has issued an indicative list of systems deemed to be based on AI and ML technology. It includes the following-

Natural Language Processing , sentiment analysis or text mining systems that gather intelligence from unstructured data. In this case, voice to text, text to intelligence systems in any natural language will be considered in scope. E.g., robo chat bots, big data intelligence gathering systems.
Neural Networks or a modified form of it. In this case, any systems that uses a number of nodes (physical or software simulated nodes) mimicking natural neural networks of any scale, so as to carry out learning from previous firing of the nodes will be considered in scope. E.g., recurrent neural networks and deep learning neural networks.
Machine learning through supervised, unsupervised learning or a combination of both. In this case, any application or systems that carry out knowledge representation to form a knowledge base of domain, by learning and creating its outputs with real world input data and deciding future outputs based upon the knowledge base. E.g., system based on Decision tree, random forest, K mean, Markov decision process, Gradient boosting algorithms.
A system that uses statistical heuristics method instead of procedural algorithms or the system / application applies clustering or categorization algorithms to categorize data without a predefined set of categories.
A system that uses a feedback mechanism to improve its parameters and bases it subsequent execution steps on these parameters.
A system that does knowledge representation and maintains a knowledge base.

AI machine learning SEBI mutual funds

Disclaimer

That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.

Komal Gupta

Policy Analyst

Policy Professional| Former Tech and Business Journalist|