What AI disclosure obligations does SEBI's Investment Advisers Second Amendment 2024 create?

SEBI (Investment Advisers) (Second Amendment) Regulations 2024 (Notification No. SEBI/LAD-NRO/GN/2024/219, December 16, 2024) amended Regulation 18 (Disclosures to Clients) of the principal SEBI (Investment Advisers) Regulations 2013. The amendment created India's first sector-specific binding obligation for investment advisers to disclose AI tool usage to clients. Three direct AI governance obligations: (1) Mandatory AI tool disclosure: investment advisers must disclose the extent of use of AI tools in providing investment advice to each client. This disclosure is not a one-time onboarding statement — it must reflect the actual extent of AI involvement in the specific advice being given. An IA whose AI platform generates the bulk of portfolio recommendations must disclose this; an IA who uses AI only for portfolio reporting but provides human advice must disclose that more limited use; (2) Sole accountability for AI-generated advice: investment advisers bear sole responsibility for the data security, confidentiality, integrity of client data, and legal compliance arising from AI-generated advice — regardless of whether the AI was built internally or licensed from a third-party robo-advisory platform. This mirrors the SEBI Intermediaries Amendment 2025 accountability structure but is specific to IA regulations and predates the broader intermediaries amendment; (3) MITC AI disclosure: robo-advisors and AI-hybrid advisory platforms must provide the standardized Most Important Terms and Conditions (MITC) document disclosing AI's role in advice generation — at the point of client onboarding and whenever the AI's role in advice changes materially. The MITC disclosure requirement ensures clients who may not understand the terms 'artificial intelligence' or 'algorithm' receive a plain-language explanation of how AI influences their investment advice.

How does SEBI's 2024 IA amendment govern robo-advisory AI platforms operating in India?

India's robo-advisory sector — Scripbox, Zerodha's Smallcase, Kuvera, Groww's advisory function, INDmoney, and dozens of AI-powered investment platforms registered as or operating through SEBI-registered IAs — faces specific governance obligations under the 2024 amendment that did not exist under the original 2013 regulations: (1) AI advice attribution: robo-advisory platforms must be able to attribute each specific recommendation to an AI-generated or human-generated source. A platform whose AI generates recommendations that are then presented by a human advisor without disclosure fails the amendment's disclosure requirement — the client has a right to know the recommendation was AI-generated; (2) AI suitability documentation: SEBI IA Regulations require investment advisers to document suitability for each client before providing advice. When the suitability assessment itself is AI-generated (AI risk profiling, AI portfolio match), the documentation must reflect that the AI conducted the assessment — and must be explainable enough to demonstrate that the AI's suitability determination was appropriate for the client's actual financial situation; (3) AI conflict of interest disclosure: robo-advisory AI platforms that recommend financial products in which the IA or its affiliates have an interest must disclose both the conflict and the AI's role in the recommendation. An AI recommendation engine that has learned to weight affiliated products more heavily — through training on historical data where those products were preferred — creates a systematic conflict of interest that must be disclosed; (4) AI advice record-keeping: SEBI IA Regulations require IAs to maintain records of advice given. The 2024 amendment's AI disclosure requirement extends to record-keeping: the record of AI-generated advice must include the AI system used, the inputs provided, the recommendation generated, and the disclosure made to the client.

What AI vendor contract obligations arise from SEBI's 2024 Investment Advisers amendment for IAs using third-party AI platforms?

The majority of SEBI-registered investment advisers — particularly small and mid-size IAs, financial planners using digital platforms, and the growing registered investment adviser community in Tier-2 and Tier-3 cities — use third-party AI tools for portfolio analysis, client risk profiling, and recommendation generation. SEBI's 2024 sole accountability obligation means that when a client suffers harm from an AI recommendation generated by a third-party platform, the IA faces SEBI regulatory liability — not the technology vendor. Four vendor governance obligations follow: (1) Pre-deployment AI assessment: before deploying a third-party AI advisory tool, the IA must assess it for compliance with SEBI IA Regulations — specifically whether the AI's recommendation logic is consistent with SEBI's suitability standards, whether it can generate compliant KYC, suitability, and conflict-of-interest disclosures, and whether its data handling meets SEBI and DPDP Act requirements; (2) AI advice accuracy monitoring: the IA must monitor AI-generated advice for accuracy, suitability appropriateness, and compliance over time. Model drift in a third-party AI platform — where the recommendation logic degrades or changes over time due to retraining — may not be visible to the IA without active monitoring; (3) Client data security at vendor: the 2024 amendment's sole responsibility for client data security means the IA is accountable for a data breach at its AI platform vendor. Data processing agreements with AI vendors must include security obligations, breach notification timelines, and data use restrictions consistent with the IA's SEBI and DPDP Act obligations; (4) AI disclosure accuracy: the MITC and per-advice AI disclosure must accurately describe the AI's role. If the third-party AI vendor changes the AI's role in recommendation generation — making it more autonomous or less — without notifying the IA, the IA's disclosures to clients become inaccurate. Change notification rights in vendor contracts are therefore a disclosure compliance obligation.

How does the SEBI IA 2024 AI amendment differ from the SEBI Intermediaries Amendment 2025?

SEBI's IA Second Amendment 2024 and the SEBI Intermediaries Amendment 2025 both create sole accountability for AI outputs, but they operate on different regulatory foundations with different scope and governance implications: (1) IA-specific obligations vs. general intermediary obligations: the IA amendment is embedded in the IA-specific regulatory framework — it inherits IA obligations like suitability documentation, conflict-of-interest disclosure, MITC, and per-advice record-keeping. The AI accountability clause therefore creates IA-specific AI governance obligations (AI suitability documentation, per-advice AI disclosure) that do not apply to other intermediaries; (2) Advice vs. all activities: the IA amendment is specifically about AI in investment advice. The Intermediaries Amendment 2025 is broader — covering any AI tool used to 'facilitate investing, trading, distributing investment strategies, compliance, management, or business activities.' An IA using AI for its own back-office operations (billing, client management, regulatory reporting) is governed by the Intermediaries Amendment; AI used for client-facing investment advice is governed by both; (3) Timing: the IA amendment is December 2024; the Intermediaries Amendment is February 2025. Investment advisers operating in the two-month gap (December 2024 to February 2025) were subject to the IA-specific AI disclosure obligation without the broader intermediary AI accountability obligation — creating a brief period where the IA-specific framework was the only applicable rule; (4) Enforcement specificity: SEBI enforcement actions against IAs for AI compliance failures will reference the IA amendment's specific Regulation 18 disclosure obligation — making the IA-specific amendment the more directly actionable regulatory provision for compliance documentation.

AI Governance · SEBI · Investment Advisers · Robo-Advisory · AI Disclosure · India BFSI

SEBI Investment Advisers Second Amendment Regulations 2024 AI Governance: Mandatory AI Tool Disclosure to Clients, Robo-Advisory Sole Accountability, MITC AI Disclosure and No Vendor Safe Harbour India

SEBI (Investment Advisers) (Second Amendment) Regulations 2024 (SEBI/LAD-NRO/GN/2024/219, December 16, 2024) amended Regulation 18 to mandate disclosure of AI tool usage in investment advice — the first India sector-specific binding AI disclosure obligation for investment advisers. Sole accountability for AI-generated advice, MITC AI disclosure for robo-advisors, no vendor safe harbour. Applies to 1,400+ SEBI-registered IAs and the growing Indian robo-advisory market. Zero global competitor coverage.

Zytra Research Team · December 2024 · 11 min read

📖 Part of the India BFSI AI Governance Complete Guide 2026 — RBI, SEBI, IRDAI, NPCI & DPDP in one place.

India's investment advisory market — Scripbox, Kuvera, INDmoney, Groww Advisory, Zerodha Varsity, and thousands of individual SEBI-registered investment advisers — increasingly uses AI for client risk profiling, portfolio construction, and recommendation generation. Prior to December 2024, no SEBI regulation required IAs to disclose to clients that their advice was AI-generated or AI-assisted. SEBI's (Investment Advisers) (Second Amendment) Regulations 2024 changed this: mandatory AI disclosure, sole accountability for AI advice, and MITC AI disclosure for robo-advisors are now Regulation 18 obligations.

The sole accountability clause creates the same no-vendor-safe-harbour position as the February 2025 Intermediaries Amendment — but specific to investment advice. An IA using a third-party robo-advisory platform that provides incorrect investment guidance cannot tell a SEBI adjudicating officer that the platform vendor is responsible. The IA is responsible.

The MITC Disclosure: Making AI Understandable to Retail Investors

The Most Important Terms and Conditions (MITC) document is a SEBI mechanism to ensure retail investors understand key terms before engaging with financial services. The 2024 amendment's requirement to disclose AI's role in advice within the MITC addresses a real retail investor gap: many clients of AI-assisted advisers do not know their advice comes from an algorithm. MITC AI disclosure must explain — in plain language accessible to a non-technical investor — what AI does in the advice process, what it cannot do (provide human judgment, understand life events not captured in financial data), and how the client can escalate to human review.

SEBI IA AI Governance Checklist

☐ Regulation 18 AI disclosure: per-advice AI tool usage disclosed to each client; disclosure reflects actual extent of AI role (portfolio construction, risk profiling, research); updated when AI role changes
☐ MITC AI section: plain-language AI role description; what AI does and what it cannot do; human escalation path; updated on material change to AI system
☐ AI suitability documentation: AI-generated suitability assessments documented and explainable; AI risk profiling inputs and outputs on record; suitability logic defensible to SEBI
☐ Conflict of interest AI audit: AI recommendation engine tested for affiliated product weighting; conflict disclosure includes AI role in recommendation generation
☐ AI advice record-keeping: AI system used, inputs, recommendation output, and client disclosure — all logged per advice session
☐ Third-party AI vendor governance: pre-deployment assessment documented; data processing agreement with security obligations; change notification rights; AI advice accuracy monitoring
☐ DPDP Act client data: AI processing consent architecture; purpose limitation for advice AI vs analytics; data minimisation for AI risk profiling
☐ SEBI examination readiness: Regulation 18 AI disclosure records, MITC AI section, suitability AI documentation, vendor assessment — packaged for SEBI IA inspection