In this article published in PolicyCircle on 27th October 2026, the authors examine the growing use of artificial intelligence (AI) in financial services and the need for stronger regulatory measures to protect consumers. AI is increasingly used by financial institutions for credit assessment, fraud detection, risk evaluation and personalised financial recommendations. While these applications improve efficiency and financial inclusion, they also raise concerns about privacy, transparency and the potential misuse of personal information. The authors specifically highlight the risks of behavioural profiling, through which AI systems analyse individuals’ digital activities to infer personality traits, emotional conditions, risk preferences and psychological vulnerabilities. Such information could help tailor lending decisions, investment recommendations and targeted marketing, potentially encouraging consumers to make financial decisions that may not serve their interests. A Wells Fargo patent granted in 2019, illustrates how computer-gaming behaviour could potentially be analysed to infer personal characteristics and assess financial risk.
The authors argue that India’s existing regulatory framework, particularly the Digital Personal Data Protection Act, 2023, does not sufficiently address the risks associated with inferred personal characteristics and algorithmic profiling. Although the Reserve Bank of India’s FREE-AI Committee recommendations provide a foundation for responsible AI adoption, stronger and enforceable safeguards are necessary. The article recommends that financial regulators, including the RBI and SEBI, establish clear restrictions on high-risk behavioural profiling, strengthen purpose limitation in data collection and usage, and ensure transparency and accountability in AI-driven financial decisions. It also emphasises the need for meaningful explanations, mechanisms to challenge inaccurate assessments and human intervention in consequential decisions. As AI becomes capable of drawing increasingly detailed conclusions about consumers, the question of who controls those inferences, and for what purposes they may be used, deserves the same regulatory attention as the personal data from which they are derived.
Read Digital Article: AI profiling in finance needs stronger consumer safeguards | Policy Circle