The "extent of use" disclosure requirement for Artificial Intelligence (AI) tools is a specific compliance obligation for Research Analysts (RAs). Under Regulation 19(vii) , RAs must disclose to clients the extent of use of AI tools in providing research services. This article provides a comprehensive technical analysis of this requirement.
Regulatory Basis
Primary Provision: Regulation 19(vii)
Regulation 19(vii) provides that:
"A research analyst or research entity shall disclose to the client the extent of use of Artificial Intelligence tools in providing research services."
When to Disclose
- New Clients: At the time of disclosing the terms and conditions of the research services.
- Existing Clients: Latest by April 30, 2025.
- Changes: Whenever required (i.e., when the extent of AI use changes materially).
What Does "Extent of Use" Mean?
Scope of "Extent"
| Aspect | Description |
|---|---|
| Scale | How widely AI tools are used |
| Types | What types of AI tools are used |
| Purpose | What AI tools are used for |
| Integration | How AI tools are integrated into the research process |
| Reliance | The degree of reliance on AI outputs |
Key Questions to Address
- Are AI tools used? (Yes/No)
- For what purposes? (Data analysis, pattern recognition, report generation, etc.)
- At what stage? (Research, analysis, writing, distribution)
- How extensively? (Minimal, moderate, substantial, exclusive)
- What types of AI? (Machine learning, natural language processing, generative AI, etc.)
Sample "Extent of Use" Disclosures
Minimal AI Use
"[Name of RA/Research Entity] uses Artificial Intelligence (AI) tools minimally in the provision of research services. AI tools are used only for preliminary data screening and basic pattern recognition. The core analysis, interpretation, and recommendations are performed by human analysts. AI outputs are reviewed and validated by human analysts before inclusion in research reports."
Moderate AI Use
"[Name of RA/Research Entity] uses Artificial Intelligence (AI) tools moderately in the provision of research services. AI tools are used for data analysis, pattern recognition, and sentiment analysis. Human analysts review, interpret, and validate AI outputs before including them in research reports. AI tools are used to augment, not replace, human analysis."
Substantial AI Use
"[Name of RA/Research Entity] uses Artificial Intelligence (AI) tools substantially in the provision of research services. AI tools are used for data analysis, pattern recognition, sentiment analysis, and report generation. Human analysts oversee the AI processes, review outputs, and make final decisions on recommendations. AI tools are used as a significant component of the research process."
Exclusive AI Use
"[Name of RA/Research Entity] uses Artificial Intelligence (AI) tools exclusively in the provision of research services. AI tools are used for all aspects of the research process, including data analysis, pattern recognition, sentiment analysis, and report generation. Human analysts conduct final review and validation of AI outputs. AI tools are the primary means of research analysis."
Factors to Consider
1. AI Tool Categories
- Data Analysis AI: For analyzing large datasets.
- Pattern Recognition AI: For identifying patterns in data.
- Sentiment Analysis AI: For analyzing market sentiment.
- Generative AI: For creating research reports.
- Predictive AI: For forecasting market movements.
2. AI Integration Level
- Fully Automated: AI handles all processes.
- Semi-Automated: AI handles some processes.
- Assisted: AI assists human analysts.
3. AI Reliance Level
- Primary: AI is the primary analysis tool.
- Secondary: AI is a secondary analysis tool.
- Supplementary: AI supplements human analysis.
Common Compliance Gaps
1. No "Extent of Use" Disclosure
Some RAs fail to disclose the extent of AI use.
Solution: Disclose the extent of AI use.
2. Vague Disclosure
Some RAs provide vague disclosures on AI use.
Solution: Provide specific disclosures on AI use.
3. Not Updating Disclosure
Some RAs fail to update disclosure when AI use changes.
Solution: Update disclosure when AI use changes materially.
4. Overlooking AI Use
Some RAs overlook incidental or minor AI use.
Solution: Disclose all AI use, regardless of scale.
Conclusion and How Anuj Desai & Associates Can Help
The "extent of use" disclosure requirement ensures transparency in AI use. RAs must provide specific and accurate disclosures.
Anuj Desai & Associates offers specialized services to help RAs comply with AI disclosure requirements:
- Review of AI tools and extent of use.
- Development of AI disclosure templates.
- Compliance audit and advisory.
Contact us today to ensure your AI disclosures comply with SEBI requirements. Our team will review your AI use and provide a tailored compliance roadmap.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers are advised to consult qualified professionals for legal and compliance matters. Anuj Desai & Associates is a SEBI compliance consulting firm based in India.