SEBI Plans AI Risk Advisory As Focus Shifts Towards Investor Empowerment

SEBI will soon release an advisory on risks linked to artificial intelligence systems and AI-based vulnerabilities in financial markets, Chairman Tuhin Kanta Pandey said on May 4 during the IMC Capital Markets conference.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

Pandey said the Securities and Exchange Board of India is working with market participants and other stakeholders to address emerging technology-related risks as AI models become more advanced and widely used across the financial sector.

He said the regulator is preparing an initial advisory aimed at helping regulated entities identify vulnerabilities and strengthen their monitoring systems.

SEBI Flags AI-Linked Risks In Financial Markets

According to Pandey, advanced AI systems are capable of detecting operational weaknesses faster, but the same tools can also exploit vulnerabilities at a larger scale and at greater speed.

He said interconnected financial markets remain exposed if one segment develops weaknesses in technology systems or cyber security infrastructure.

Pandey noted that market intermediaries and regulated institutions must improve cyber resilience measures and continuously monitor systems to reduce potential risks.

He added that SEBI has remained in regular contact with exchanges, intermediaries and stakeholders following concerns linked to emerging AI models and technology systems.

The regulator’s proposed advisory is expected to focus on preparedness, system safeguards and proactive monitoring measures for financial entities.

Investor Participation Increases Across Markets

Pandey said India has witnessed a sharp increase in investor participation through mutual funds, digital investment platforms and first-time investors entering equity markets.

He said investor protection remains a core responsibility for SEBI, but the next phase of the regulator’s work will focus on investor empowerment.

According to Pandey, wider market participation must be supported with awareness regarding risks, suitability of products, costs and grievance mechanisms.

He said investors should also be able to verify whether financial intermediaries are regulated entities.

Focus On Market Development

Pandey said several reforms and market products introduced in recent years have contributed to wider participation and capital formation.

He referred to developments such as digital onboarding, faster settlement systems, direct payout mechanisms, online bond platforms, REITs, InvITs, alternative investment funds, municipal bonds, green bonds and commodity derivatives.

According to him, these initiatives have helped improve access to financial markets and strengthened risk management processes.

He added that SEBI will continue engaging with stakeholders to address risks arising from technology adoption and evolving market structures.