India’s SEBI Prepares Advisory on Emerging AI Risks for Market Intermediaries
India’s SEBI Prepares Advisory on Emerging AI Risks for Market Intermediaries
India’s securities regulator is preparing to issue a new advisory on emerging artificial intelligence risks, as financial market participants increase their use of advanced AI tools in trading, compliance, research, customer service, and risk management.
According to Reuters, the Securities and Exchange Board of India, known as SEBI, is expected to release guidance for market intermediaries soon. SEBI Chairman Tuhin Kanta Pandey said the regulator is engaging with stakeholders about AI-related threats, including risks linked to Anthropic’s Mythos and other AI systems.
Why SEBI’s AI Advisory Matters
The planned advisory comes at a time when artificial intelligence is moving quickly into India’s financial markets. Brokers, asset managers, exchanges, research firms, and other intermediaries are exploring AI to improve speed, reduce costs, and analyze large volumes of market data.
However, regulators around the world are also concerned that AI can create new risks. These may include incorrect outputs, biased decisions, data leaks, market manipulation, weak accountability, and overreliance on automated systems.
Focus on Market Intermediaries
SEBI’s advisory is expected to focus on market intermediaries, which are firms and professionals that connect investors with India’s capital markets. These include brokers, investment advisers, portfolio managers, mutual fund-related entities, and other regulated participants.
For these firms, AI can be useful, but it must be managed carefully. A wrong recommendation, flawed trading signal, or poorly monitored chatbot could affect investors and damage trust in the market.
Emerging Risks From AI Tools
AI tools can process information faster than humans, but they can also make confident mistakes. In finance, even a small error can lead to large losses or misleading investor communication.
One major concern is explainability. If an AI system gives a recommendation, firms must understand why it produced that result. Without clear records and controls, it becomes difficult to assign responsibility when something goes wrong.
SEBI’s Wider Regulatory Direction
The move shows that SEBI is taking a proactive approach to technology risk. Rather than waiting for major failures, the regulator appears to be warning firms early about the need for stronger governance around AI.
This could lead to better internal controls, clearer testing standards, stronger cybersecurity checks, and improved human oversight. Firms may also need to review how AI tools use investor data and whether third-party AI providers meet compliance expectations.
Impact on Investors
For ordinary investors, SEBI’s advisory could help improve safety and transparency. If financial firms use AI responsibly, investors may benefit from faster service, better research, and more personalized tools.
At the same time, investors need protection from automated advice that is unsuitable, misleading, or based on incomplete information. A regulatory advisory can remind firms that innovation should not come at the cost of investor protection.
What Firms May Need to Do Next
Market intermediaries may need to map where AI is being used inside their organizations. They may also need to check whether AI systems are properly tested, monitored, and documented.
Important areas may include data privacy, model accuracy, cybersecurity, vendor risk, staff training, audit trails, and escalation processes when AI outputs appear unreliable.
Global Importance of AI Regulation
SEBI’s planned advisory fits into a wider global trend. Financial regulators in many countries are studying how AI could affect market fairness, financial stability, and consumer protection.
As AI becomes more powerful, regulators are likely to expect companies to prove that their systems are safe, explainable, and supervised by humans.
Conclusion
SEBI’s upcoming advisory signals that India’s capital market regulator wants financial innovation to grow with proper safeguards. AI can bring major benefits to the financial industry, but it also creates risks that cannot be ignored.
For brokers, advisers, asset managers, and other intermediaries, the message is clear: AI adoption must be responsible, transparent, and investor-focused. As India’s markets continue to modernize, SEBI’s guidance could become an important step in shaping safer AI use across the financial sector.
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