Sebi plans AI guardrails for capital markets, focus on investor protection

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Sebi floated a consultation paper proposing guiding principles for responsible usage of Artificial Intelligence (AI)/ Machine Learning (ML) applications/models in securities markets

Markets regulator Sebi will soon issue detailed guidelines for the responsible use of Artificial Intelligence (AI) in the capital markets, its chairman Tuhin Kanta Pandey said, emphasising the need to balance technological innovation with investor protection.

The Sebi chief said the proposed guidelines would focus on establishing appropriate guardrails for AI use, including disclosures, accountability of regulated entities and a 'human-in-the-loop' approach to ensure that critical decisions are subject to human oversight.

In June 2025, Sebi floated a consultation paper proposing guiding principles for responsible usage of Artificial Intelligence (AI)/ Machine Learning (ML) applications/models in securities markets.

These guiding principles are intended to optimise benefits and minimise potential risks associated with the integration of AI/ML based applications in securities markets to safeguard investor protection, market integrity, and financial stability.

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), on Saturday, Pandey said the regulator has been continuously strengthening its cybersecurity framework to address rising cyber threats.

He highlighted growing concerns over cyberattacks targeting financial institutions and cryptocurrency platforms, as well as digital frauds involving social media influencers.

Following emerging threats, the regulator also introduced a structured incident response mechanism in May this year, aligned with the Financial Stability Board's FIRE reporting template, he said at the sidelines of an event here on Saturday.

On quantum computing-related risks, the Chairman said Sebi is undertaking an inventory of cryptographic systems and identifying areas where cryptography is being used to assess potential vulnerabilities.

He said markets globally are preparing for the risks posed by quantum computing, with concerns expected to become…

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