From institutions to algorithms: Sebi warns on AI in markets

New Delhi: 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 a business summit, 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.

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.