Sebi plans AI guardrails for capital markets, stresses human oversight in critical decisions

The proposed guidelines will set safeguards for AI use in capital markets, with disclosures, accountability and human oversight at their core.

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, with a focus on investor protection, accountability and human oversight, chairman Tuhin Kanta Pandey said on Sunday.The proposed guidelines will lay down safeguards for AI applications used by market participants, including disclosure requirements and accountability of regulated entities. A ‘human-in-the-loop’ approach will also ensure that critical decisions involving AI remain subject to human oversight, Pandey said, according to PTI.The regulator had floated a consultation paper in June 2025 proposing guiding principles for the responsible use of AI and machine learning in the securities market. The proposed framework aims to harness the benefits of the technology while addressing risks to investor protection, market integrity and financial stability.Pandey was speaking at the inauguration of Sebi’s pavilion, titled ‘Bharat Ka Share Bazaar’, at the 45th India International Trade Fair (IITF) 2026 at Bharat Mandapam in New Delhi. The pavilion, inaugurated on November 14, has been set up in association with market institutions, including the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Multi Commodity Exchange (MCX), Central Depository Services (India) Ltd (CDSL), National Securities Depository Ltd (NSDL) and the Association of Mutual Funds in India (AMFI).The pavilion features an AI zone and an Investor Facilitation Camp, where visitors can interact with officials and learn about safe investment practices. It also aims to educate people about fraudulent investment schemes, unregistered entities and illegal mobilisation of funds.Pandey urged participating institutions to use their interactions with visitors to identify processes that could be simplified and services that could be improved. He also highlighted Sebi’s ‘Samajh Se Investing Simple’ campaign under Project Jagrook and reiterated the message ‘Check, Validate and Verify’, asking investors to understand an investment, verify its authenticity and assess its risks before committing money.The regulator has also been strengthening its cybersecurity framework amid rising threats to financial institutions and cryptocurrency platforms, as well as digital frauds involving social media influencers. Sebi introduced a structured incident response mechanism in May, aligned with the Financial Stability Board’s FIRE reporting template, Pandey said, reported ANI.On risks linked to quantum computing, the Sebi chief said the regulator was taking stock of cryptographic systems and identifying areas where the technology is used to assess potential vulnerabilities. Such risks could become more pronounced around 2032-35, making it important for markets to prepare in advance.Sebi has also developed supervisory tools, including ‘Sudarshan’, which is being showcased at international regulatory forums, and is working to strengthen its AI capabilities through global initiatives and supervisory toolkits.Sebi reviews listing framework for startupsPandey also said Sebi has set up a working group to examine ways to make the Innovators Growth Platform (IGP) more attractive to startups, particularly deep-tech and biotech firms that may take longer to become profitable.The existing platform has not gained the desired traction, and the regulator is considering changes that could help such companies access public markets at an earlier stage. The aim is to give investors a clearer understanding of the higher risks involved while allowing them to participate in the companies’ long-term growth potential.The 45th IITF, organised by the India Trade Promotion Organisation, is being held at Bharat Mandapam from November 14 to 27. This year’s theme is ‘Vikas aur Virasat’.