India to introduce AI oversight rules for capital markets
India’s capital markets regulator will soon establish standards for the application of artificial intelligence and machine learning, structuring supervision through multiple oversight layers that enforce strict accountability and mandatory human review.
The framework was outlined by SEBI Chairman Tuhin Kanta Pandey during the second Capital Market Confluence 2026 conference. Under the proposed rules, regulated firms must ensure responsibility for AI-generated decisions, maintain data accuracy, enforce robust model management, and reinforce cybersecurity measures. The guidelines will also mandate automated shutdown mechanisms for high-risk operations, while aligning with the International Organization of Securities Commissions’ existing supervisory standards for AI systems.
Pandey stressed that human oversight will remain essential as automated systems grow more influential in trading, settlement processes, and regulatory supervision. The new rules seek to prevent automation from eroding accountability while allowing for adaptive governance structures.
In parallel, SEBI is finalizing regulations for derivatives settlement pricing on expiry days, with a decision expected in about a week. The regulator evaluated feedback on a consultation paper addressing operational concerns about the Closing Auction Session mechanism. Additionally, it plans to consolidate tender offers, share buybacks, and offers for sale into a unified, interoperable system by the end of November 2026, aiming to cut compliance costs and operational friction for market participants.
Other key initiatives include streamlining digital investor onboarding for foreign investors—SEBI has received over 400 comments on a proposal to remove physical presence requirements. A circular on the matter is expected shortly.
India’s capital markets currently hold a combined valuation of ₹472 lakh crore, with participation from over 15 crore unique investors. Mutual fund assets total ₹87 lakh crore, while outstanding corporate bonds reach ₹61 lakh crore, Pandey reported. While expansion remains a priority, the regulator is placing equal emphasis on building investor confidence, operational resilience, and efficiency rather than pursuing growth alone.
The chairman emphasized that India’s markets should not only draw global capital but also serve as a model for other jurisdictions, striking a balance between supporting innovation and upholding strong investor protections alongside rigorous operational standards.
