New artificial intelligence guardrails for capital markets will arrive soon, balancing technological innovation with mandatory investor protection, according to the markets regulator.
Sebi Proposes Guardrails for Responsible AI Use
The upcoming framework builds on a consultation paper floated in June 2025. That initial document proposed guiding principles for responsible usage of artificial intelligence and machine learning applications in securities markets.
Speaking on Saturday at the 45th India International Trade Fair 2026, Sebi Chairman Tuhin Kanta Pandey detailed the core focus areas. The rules mandate that regulated entities maintain clear accountability for their algorithms.
“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,” Pandey told Economic Times.
Supervisory Tools and Cyber Threats
Sebi has already developed internal supervisory instruments, including its ‘Sudarshan’ tool demonstrated at international regulatory forums. Meanwhile, the agency is addressing rising threats across digital assets and social media platforms.
Following emerging cyberattacks targeting financial institutions, the regulator introduced a structured incident response mechanism in May this year. This system aligns directly with the Financial Stability Board’s FIRE reporting template.
The watchdog is inventorying cryptographic systems to assess vulnerabilities ahead of anticipated quantum computing risks. Industry experts project these quantum threats will become acute between 2032 and 2035.
| Initiative / Tool | Launch / Target Period | Core Objective |
|---|---|---|
| AI/ML Consultation Paper | June 2025 | Establish initial guiding principles for securities markets |
| FIRE Incident Response | May this year | Align cybersecurity reporting with Financial Stability Board standards |
Revamping Startup Access
Beyond artificial intelligence, the regulator has formed a working group to overhaul the Innovators Growth Platform. Deep-tech and biotech startups requiring long gestation periods have found the existing framework lacking.
The review seeks to help cash-intensive firms access public markets earlier while providing investors clear visibility into underlying business risks. However, Pandey declined to comment on ongoing government budget discussions.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
