Artificial Intelligence in Financial Services: Navigating Legal Frameworks in India and International Jurisdictions

Joy Bose

No 2my9a_v1, LawArchive from Center for Open Science

Abstract: Use of Artificial Intelligence (AI) in financial services has shown rapid growth in India in the last couple of decades, thanks to the ability of AI to examine vast amounts of data, identify patterns and potential efficiency savings from using AI in automation. The major use cases of AI in the finance domain include automated credit scoring, fraud detection, insurance risk, algorithmic trading and investment advice including robo advisors. However, the law in India has been a bit slow in catching up with the multiple recent financial innovations involving AI. For example, India did not have an overarching privacy and data protection law until recently, when the Digital Personal Data Protection Act 2023 was passed. Fortunately, laws regulating finance in other countries such as GDPR in Europe and equivalent laws in USA and Singapore can serve as a model to enhance financial regulation in India. In this study, we first discuss important issues related to AI in finance related to bias, privacy, transparency, and ethics. Following a doctrinal and comparative legal methodology, we then study existing laws related to AI in finance in India and globally and identify missing areas in the current state of regulation of AI. We discuss a few landmark case studies in India and other countries related to legal aspects of AI in finance. Finally, we identify issues in existing Indian laws and make recommendations for a legal framework to handle the identified issues in AI in finance. Recommendations include mandating algorithmic transparency and explainability, introducing bias auditing and fairness testing, amending the DPDP Act to include automated decision rights, developing a risk-based AI regulatory framework, better regulatory capacity and industry self-governance. Only if lawmakers, regulators, and industry leaders effectively collaborate to meet the challenges, can we shape a fairer and dynamic financial AI ecosystem in India.

Date: 2025-06-03
New Economics Papers: this item is included in nep-law, nep-pay and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:osf:lawarc:2my9a_v1

DOI: 10.31219/osf.io/2my9a_v1

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