SEBI to Focus on AI and Cyber Risks with New Advisory for Market Participants

India’s market regulator is preparing to address emerging technology risks as artificial intelligence becomes increasingly embedded in financial systems.  

The move comes amid growing concerns over how advanced tools could reshape both efficiency and vulnerability in capital markets. 

AI Risks and Advisory Plan 

As per news reports, Tuhin Kanta Pandey, Chairman of the Securities and Exchange Board of India, said the regulator will soon release an initial advisory focusing on risks arising from next-generation AI models and AI-driven vulnerability detection tools. 

Speaking at the IMC Chamber of Commerce and Industry Capital Markets Conference 2026, Pandey noted that technological progress is rapidly transforming market infrastructure.  

He said, “SEBI will soon issue an initial advisory on risks emanating from such models and AI-led vulnerability detection tools.” 

He explained that these systems are increasingly being deployed to scan financial infrastructure for weaknesses. While they can help identify risks quickly, they also carry the ability to exploit vulnerabilities at speed and scale. 

Systemic Risks and Market Interconnectedness 

Pandey highlighted that the interconnected nature of modern financial markets amplifies these risks. He said, “In an interconnected securities market, a single weak link can create wider risks,” underlining that threats cannot be assessed in isolation at the level of individual entities. 

The complexity of managing such risks is rising, particularly as AI tools become more sophisticated and capable of operating across multiple layers of market infrastructure simultaneously. 

Regulatory Expectations and Approach 

SEBI has directed intermediaries and market institutions to strengthen cyber resilience, implement continuous monitoring systems and ensure swift remediation of vulnerabilities.  

The focus, as highlighted by Tuhin Kanta Pandey, is on preparedness and timely response rather than post-incident action, with ongoing engagement between SEBI and stakeholders to track emerging risks. 

The forthcoming advisory is designed to support responsible innovation, not restrict technology use, and will serve as an early supervisory signal within SEBI’s risk-based regulatory framework.  

No timeline has been specified, and key details such as compliance requirements, penalties and the scope of applicability remain undisclosed. 

Balancing Innovation and Stability 

Pandey noted that innovation has contributed significantly to market development through digital onboarding, faster settlement cycles and new financial products.  

However, he stressed that technological advancement must remain aligned with accountability and market integrity. 

He said innovation should ultimately support market stability, strengthen investor confidence and contribute to long-term capital formation, while ensuring emerging risks are addressed before they escalate into systemic issues. 

Read More: SEBI Operationalises PaRRVA for Verified Performance Disclosure; To Go Live from May 4! 

Conclusion 

SEBI’s proposed advisory reflects a proactive approach to managing evolving risks in a technology-driven financial ecosystem, as the regulator seeks to balance innovation with stability and resilience. 

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