Regulating Algorithmic And AI-Based Investment Advice: Liability, Transparency, And Investor Protection In Indian Securities Markets

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Riddhiman Ganguly & Arjya Bagchi, Amity Law School, Kolkata, India

ABSTRACT

The increasing integration of algorithmic and artificial intelligence (AI)-driven systems in investment advisory services has fundamentally transformed the functioning of securities markets, raising complex legal and regulatory concerns. In India, the rapid proliferation of robo-advisory platforms and data- driven financial technologies challenges the adequacy of the existing regulatory framework governed by the Securities and Exchange Board of India. This paper critically examines whether current securities regulations—particularly the SEBI (Investment Advisers) Regulations, 2013—are equipped to address the unique risks posed by AI-based investment advice.

Adopting a doctrinal and comparative methodology, the study analyses key issues of liability, transparency, and investor protection in the context of algorithmic decision-making. It interrogates the attribution of legal responsibility in cases of algorithmic error, bias, or financial loss, and evaluates the applicability of traditional legal doctrines such as fiduciary duty and negligence to autonomous or semi-autonomous advisory systems. The paper further explores the “black box” nature of AI and its tension with disclosure and transparency obligations under securities law, highlighting the limitations of existing compliance frameworks.

Drawing comparative insights from jurisdictions such as the European Union and the United States, the paper identifies critical regulatory gaps in the Indian regime and argues for a principled, adaptive approach to governance. It proposes a hybrid regulatory framework incorporating enhanced disclosure standards, algorithmic accountability mechanisms, and risk-based supervisory oversight to ensure robust investor protection while fostering innovation. The study ultimately contends that without targeted regulatory reform, the increasing reliance on AI-driven advisory systems may undermine market integrity and investor confidence.

Keywords: Artificial Intelligence; Algorithmic Investment Advice; Robo- Advisory; Securities Regulation; Investor Protection; Algorithmic Accountability; Transparency; SEBI; FinTech Regulation; Liability in AI Systems

492. REGULATING ALGORITHMIC AND AI-BASED INVESTMENT ADVICE- LIABILITY, TRANSPARENCY, AND I

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