Using artificial intelligence (AI), market regulator Securities and Exchange Board of India (SEBI) is implementing a granular risk-based approach to regulation for diverse institutions, such as mutual funds, exchanges, and brokers.
At the Global Fintech Fest 2023, SEBI Chairperson Madhabi Puri Buch highlighted the transition from general laws to more specific rules based on risk considerations. To avoid the need for substantial regulation, SEBI, for instance, wants to adopt “Mutual Fund Lite” regulations for passive funds that base their investment choices on changes in the underlying benchmark index.
Buch emphasised the importance of artificial intelligence in this regulatory change, saying that it will allow SEBI to distinguish between firms that have effective risk management practises and those that don’t. Due to this distinction, laws will become more specialised, with firms exhibiting effective risk management being subject to fewer restrictions.
In the past, SEBI has relied on regulation based on disclosure, forcing various market players to submit significant data for regulatory purposes. By adopting AI, SEBI hopes to make better use of data and offer market players advice and feedback of the highest calibre.
Buch emphasised the value of data as a public benefit and infrastructure and argued in favour of open access to free, downloadable, and archival data. By using data and AI-driven insights, the objective is to prevent instances of misselling and ensure that financial products are suitable for customers.