Sebi Chief Flags Risks of AI Use in Financial Markets

The Securities and Exchange Board of India (Sebi) has flagged the growing use of artificial intelligence and advanced technologies in financial markets as a key regulatory challenge, stressing the need for stronger governance and accountability as market participation widens.

Speaking on Friday, Sebi chairman Tuhin Kanta Pandey said that technology is transforming capital markets faster than regulations can keep pace. Algorithmic trading, digital platforms and AI-driven decision-making have become integral to everyday market operations, bringing both opportunities and risks for regulators.

Pandey said Sebi is actively strengthening its regulatory framework to adapt to the changing landscape. The regulator has rolled out measures such as Supervisory Technology (SupTech), Regulatory Technology (RegTech), enhanced cybersecurity protocols and improved data governance systems to better monitor market activities and protect investors.

While AI offers powerful tools for market surveillance, fraud detection and operational efficiency, Pandey cautioned that it also introduces new risks. These include a lack of transparency in automated decision-making, potential bias embedded in algorithms and the concentration of technological power among a few large players. Such risks, he noted, could impact market fairness and stability if not addressed through robust oversight.

To prepare for these challenges, Sebi has set up a high-level expert working group to develop both short-term and long-term strategic roadmaps for regulating the securities market ecosystem in an increasingly technology-driven environment. The group will study how emerging technologies are being used across the financial system and recommend policy measures to ensure innovation is balanced with investor protection and market integrity.

As markets become more digital and data-driven, regulatory standards must evolve accordingly. Sebi’s focus, he said, will remain on enabling innovation while ensuring transparency, accountability and trust in India’s capital markets.