AI brings risks, opacity; regulation must evolve to supervise technology: Sebi chief

Sebi Chairman Tuhin Kanta Pandey on Friday flagged the risks posed by artificial intelligence in the financial system and said that regulations must evolve to supervise systems and technology, and manage the boundary between regulated finance and unregulated digital spaces.

Sebi Chairman Tuhin Kanta Pandey on Friday flagged the risks posed by artificial intelligence in the financial system and said that regulations must evolve to supervise systems and technology, and manage the boundary between regulated finance and unregulated digital spaces. Quoting Mustafa Suleyman, CEO of Microsoft AI, Pandey said the coming wave of AI, synthetic biology and other technologies would be a ''compelling challenge'' or ''a predicament for humanity''. Addressing the ET Now Global Business Summit 2026, the top boss at the stock market regulator said that on one hand, AI offers powerful tools for surveillance and fraud detection, but it also brings risks, opacity, bias, and concentration of technological power. ''Regulation must therefore evolve from supervising institutions to supervising systems and technology. They must address concentration and interconnectedness risks, strengthen data governance and consent architecture, and manage the boundary between regulated finance and unregulated digital spaces,'' Pandey said. Stating that technology is reshaping markets faster than any rule book, he said algorithmic trading, digital platforms, and AI-driven decision making are now part of everyday market functioning. The Securities and Exchange Board of India (Sebi) is, therefore, responding through SupTech (Supervisory Technologies) and RegTech (Regulatory Technologies), stronger cyber security frameworks, and improved data governance, he said. The regulator has also set up a high-level expert working group to develop a short-term and long-term strategic technology roadmap for the securities market ecosystem. Pandey said while the regulator sets direction and guardrails after due consultations, the industry has to innovate responsibly. Talking about India's next regulatory frontier, he said that regulation can no longer be only reactive; it must become anticipatory. ''It must move with markets, not behind them''. He said India's market capitalisation has grown more than fourfold in the last 10 years to over Rs 470 trillion today. As a share of GDP, it has risen from around 81 per cent in 2015 to 138 per cent today. In FY25, equity and debt issuances together amounted to Rs 14.3 trillion, while in the April-January period of FY26, it has reached Rs 11.6 trillion. In 2025, India led in IPO activity globally, with a record number of IPOs, and stood third in terms of IPO proceeds. ''As markets scale, the quality of regulation becomes as important as the quantity of capital they attract,'' Pandey said. He said the regulation has evolved over the years, moving from a framework that focused largely on entities to one that focuses on their activities and risks. ''We are moving from silo oversight to a more coordinated regulatory architecture. We are also moving from static rules to dynamic supervision,'' Pandey added.

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