AI/ML Tool Usage Disclosure for AIF Managers — Parallel Framework to What Now Exists for Investment Advisers

Investment Advisers already have a clear, named disclosure obligation for AI tool usage. AIF Managers don't have an identical standalone circular — but that doesn't mean they're outside the framework. Here's how the two actually connect.

Where the Investment Adviser Rule Came From

SEBI's amendments to the IA Regulations, effective December 16, 2024, inserted Regulation 15(14), requiring Investment Advisers to disclose the extent of AI tool usage to clients at the time of entering into an agreement, with existing clients to be brought into compliance shortly after. It's a specific, client-facing disclosure obligation, tied to a numbered regulation, and it has generated a fair amount of coverage precisely because it names "AI" explicitly in a way SEBI's rules rarely do.

The Broader Rule That Actually Applies to AIF Managers

AIF Managers don't have their own numbered "AI disclosure" regulation — but SEBI didn't leave them out of the picture either. The SEBI (Intermediaries) (Amendment) Regulations, 2025, which inserted a new Regulation 16C into the Intermediaries Regulations, 2008, applies far more broadly: any person regulated by SEBI using AI/ML tools or techniques — whether built in-house or procured from a third-party vendor — is solely responsible for the privacy, security, and integrity of investor data processed through those tools, and for the outputs those tools generate. Because an AIF Manager is a SEBI-regulated person, this general liability rule sits over it just as it does over brokers, RTAs, and other intermediaries — the difference from the IA rule is that it's a liability and governance provision rather than a specific client-disclosure mandate.

What This Means in Practice for a Manager Using AI Tools

If an AIF Manager uses AI/ML tools anywhere in its workflow — portfolio screening, due diligence summarisation, valuation support, investor-facing chatbots, or compliance monitoring — Regulation 16C means the Manager cannot point to a third-party vendor's SLA as a shield if something goes wrong. The Manager remains accountable to SEBI for the tool's data handling and its output quality, regardless of who built it. This is a materially different structuring question from a simple "should we disclose this to LPs" one — it's a governance and vendor-contracting question that needs to sit with the Manager's Compliance Officer, not just its technology team.

The Direction of Travel — SEBI's June 2025 Consultation Paper

SEBI's June 2025 Consultation Paper on responsible AI/ML usage signals where the broader framework is likely headed for all regulated entities, AIF Managers included — board-approved governance frameworks, model explainability, documented testing before deployment, continuous monitoring, independent audit, and investor-facing disclosure of AI usage covering purpose, risk, and accuracy in plain language. None of this is binding law yet in the same explicit form as the IA disclosure rule, but Managers building AI into their processes now would be well served by anticipating these expectations rather than retrofitting governance once a formal circular lands.

Practical Steps Worth Taking Now

Given the direction SEBI has signalled, AIF Managers using or evaluating AI tools should, at minimum: maintain an internal inventory of every AI/ML tool in use and its purpose; document the governance and human-oversight layer around each one; review vendor agreements to ensure they don't attempt to disclaim liability that Regulation 16C places squarely on the Manager; and consider proactive LP disclosure of material AI usage in investor reporting, ahead of any formal mandate to do so.

Getting Ahead of a Framework Still Taking Shape

The absence of an AIF-specific "AI disclosure circular" isn't a gap in the rules — it's Regulation 16C's general liability standard already doing that work, with more specific obligations likely to follow. We help AIF Managers map their AI tool usage against the current regulatory posture and build the governance documentation SEBI is clearly signalling it will expect.

This article is for general informational purposes and reflects the regulatory position as understood at the time of writing; readers should verify the current status of SEBI's AI/ML framework before relying on it for compliance decisions.