REGULATING AI-GENERATED DEEPFAKES IN INDIA’S SECURITIES MARKET: A CRITICAL ANALYSIS OF SEBI’S ROLE AND POLICY IMPLICATION

Abstract

The rapid growth in artificial intelligence (AI), particularly the deep learning technologies, has significantly transformed India’s securities market. It offers a unique set of tools that assist investors and other intermediaries in financial analysis. However, there is a rise in misuse of AI-generated deep-fakes and misinformation that impersonate corporate leaders, regulators and financial experts, misleading the retail investors, manipulating the stock prices and undermining market confidence. This paper argues that the Securities Exchange Board of India (SEBI) needs to extend its regulatory oversight beyond the registered entities' activity to encompass all forms of AI-driven financial misinformation, including deepfakes. Relying on real-world incidents across India and globally, the paper demonstrates how deepfakes or AI- generated misinformation (particularly in the securities market) have led to losses to investors and market volatility. Although jurisdictional limits, regulatory overlap with the Ministry of Electronics and Information Technology (MeitY), and free speech concerns pose challenges, the paper contends that through effective collaboration, coordinated frameworks, investor education, targeted regulation under the PFUTP Regulations and technological collaboration with the AI research entities, SEBI can effectively address these concerns. Additionally, comparative analysis from the UAE FSRA, UK FCA, US SEC and FINRA and Germany’s BaFin practices further inform a robust policy proposal. Finally, the study looks into SEBI’s proactive intervention, along with balanced inter-agency cooperation, is required to protect
the interests of the investors and market integrity in the era of AI.