Sebi to issue AI guidelines for capital markets soon, focus on investor protection and human oversight
The Securities and Exchange Board of India (SEBI) will soon issue detailed guidelines for the responsible use of Artificial Intelligence (AI) in the capital markets, Chairman Tuhin Kanta Pandey said on Saturday. The proposed framework will seek to balance technological innovation with investor protection, market integrity and financial stability.
Pandey said the guidelines would establish safeguards governing the use of AI by market participants. Key provisions are expected to cover disclosures, accountability of regulated entities and a 'human-in-the-loop' approach, ensuring that critical decisions involving AI systems remain subject to human oversight.
The regulator had floated a consultation paper in June 2025, proposing guiding principles for the responsible use of Artificial Intelligence and Machine Learning (AI/ML) applications and models in the securities market.
The proposed principles aim to maximise the benefits of AI adoption while minimising potential risks to investors and the broader financial system.
Speaking at the inauguration of SEBI's pavilion at the 45th India International Trade Fair (IITF) 2026, organised by the India Trade Promotion Organisation (ITPO), Pandey highlighted the growing threat of cyberattacks targeting financial institutions and cryptocurrency platforms.
He also flagged the increasing instances of digital fraud involving social media influencers, underscoring the need for stronger safeguards as financial services become increasingly technology-driven.
To address emerging threats, SEBI introduced a structured incident response mechanism in May this year. The framework is aligned with the Financial Stability Board's FIRE reporting template, which provides a structured approach to reporting cyber incidents.
Pandey said the regulator was continuously strengthening its cybersecurity infrastructure to respond to evolving risks and protect the securities market.
The SEBI chairman also highlighted potential cybersecurity challenges arising from advances in quantum computing.
He said the regulator was conducting an inventory of cryptographic systems and identifying areas where cryptography is being used to assess possible vulnerabilities.
According to Pandey, markets globally are preparing for the risks associated with quantum computing, with concerns expected to become more pronounced during 2032-35. He stressed that preparations must be completed well in advance to ensure that the financial ecosystem remains protected against future technological threats.
Pandey said SEBI has already developed several technology-driven supervisory tools, including its 'Sudarshan' platform, which is being demonstrated at international regulatory forums.
The regulator is also working to strengthen its AI capabilities through international initiatives and supervisory toolkits.
He added that SEBI was reviewing the existing regulatory framework to ensure that the adoption of AI by market participants does not undermine investor protection, market safety or the integrity of financial markets.
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Separately, Pandey said SEBI has constituted a working group to examine ways to make the Innovators Growth Platform ( IGP) more attractive for startups.
The review will particularly focus on deep-technology and biotechnology companies, which often require longer gestation periods before generating profits.
The chairman acknowledged that the existing platform has not gained the desired traction and said the regulator was examining possible changes to facilitate earlier access to public markets for such businesses.
The proposed changes aim to provide investors with greater clarity about the risks associated with investing in early-stage companies while allowing them to participate in their long-term growth potential.
Pandey, however, declined to disclose details of discussions relating to budget-related matters.
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