SEBI has mandated that Research Analysts (RAs) disclose the use of Artificial Intelligence (AI) and Machine Learning (ML) tools in their research services. This requirement ensures transparency and accountability in the use of AI. This article provides a comprehensive technical analysis of the AI/ML disclosure requirement.
Regulatory Basis
Primary Provisions
Regulation 19(vii) of the RA Regulations 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."
Regulation 24(7) provides that:
"A research analyst or research entity who uses Artificial Intelligence tools, irrespective of the scale and scenario of adoption of such tools, for servicing its clients shall be solely responsible for the security, confidentiality and integrity of the client data, use of any other information or data for research services, research services based on output of Artificial Intelligence tools and compliance with any law for the time being in force."
Guidelines Circular
The circular dated January 8, 2025 (SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2025/004) on "Guidelines for Research Analysts" specifies the AI disclosure requirements.
Key Requirements
1. Disclosure of AI Use
Requirement: RAs must disclose to clients the extent of use of AI tools in providing research services.
Timing: At the time of disclosing the terms and conditions of research services.
2. Sole Responsibility
Requirement: RAs are solely responsible for:
- Security of client data
- Confidentiality of client data
- Integrity of client data
- Use of information or data for research services
- Research services based on AI output
- Compliance with any law
3. Compliance Timeline
Requirement: Compliance with AI-related requirements must be achieved by 30 April 2025.
What Must Be Disclosed
1. Extent of Use
- Whether AI tools are used
- To what extent AI tools are used
- What AI tools are used for
- How AI tools are integrated into the research process
2. Purpose of AI Use
- Data analysis
- Pattern recognition
- Report generation
- Any other purpose
3. Accountability
- RA's responsibility for AI outputs
- RA's responsibility for data security
Where to Disclose
| Location | Include? |
|---|---|
| Terms and Conditions | Yes |
| Client Communications | Yes |
| Website | Yes |
| Research Reports | Yes |
Sample Disclosure
"Disclosure on the Use of Artificial Intelligence Tools:
[Name of RA/Research Entity] uses Artificial Intelligence (AI) tools in the provision of research services. The AI tools are used for [purpose, e.g., data analysis, pattern recognition, report generation]. The extent of AI use is [description of extent].
[Name of RA/Research Entity] is solely responsible for:
- The security, confidentiality, and integrity of client data used with AI tools.
- The use of any information or data for research services.
- Research services based on the output of AI tools.
- Compliance with any law for the time being in force.
Clients may contact [Contact Person] at [Email] or [Phone] for more information about our AI tools and their use in research services."
Common Compliance Gaps
1. No AI Disclosure
Some RAs using AI tools do not disclose this to clients.
Solution: Disclose AI use to all clients.
2. Incomplete Disclosure
Some RAs provide incomplete disclosure.
Solution: Provide comprehensive disclosure.
3. Assuming No Liability
Some RAs assume they are not liable for AI outputs.
Solution: Understand and acknowledge liability.
4. Not Updating Disclosure
Some RAs do not update disclosure when AI use changes.
Solution: Update disclosure when AI use changes.
Conclusion and How Anuj Desai & Associates Can Help
AI/ML disclosure is a critical compliance requirement.
Anuj Desai & Associates offers specialized services to help RAs comply with AI/ML disclosure requirements:
- Review of AI tools and processes
- Development of AI disclosure templates
- Compliance audit and advisory
Contact us today to ensure your AI disclosures comply with SEBI requirements. Our team will guide you through the process.
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.