SEBI To Issue Advisory On AI Risks In Financial Markets

India's markets regulator is preparing a formal warning to financial market participants about artificial intelligence (AI)-related vulnerabilities, with Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey confirming the advisory is coming soon.

Speaking at the IMC Capital Markets conference in Mumbai on Monday, Pandey said advanced artificial intelligence systems, specifically referencing Anthropic's Claude Mythos, present a dual challenge for India's securities markets. The tools that identify weaknesses in financial infrastructure faster than conventional methods can equally be turned toward exploiting those weaknesses at speed and scale.

Public sector banks are already reportedly ramping up information technology spending in response to Claude Mythos' demonstrated ability to detect and potentially exploit cybersecurity vulnerabilities. Finance Minister Nirmala Sitharaman has separately urged banks to take pre-emptive steps to secure their systems.

What The Advisory Will Cover

The advisory is expected to push regulated entities to take a more proactive stance on risks linked to artificial intelligence. The focus stays on acting early, not reacting after damage.

• Continuous monitoring for artificial intelligence-driven intrusion attempts.

• Faster remediation cycles instead of relying only on periodic security reviews.

• Understanding how next-generation models can identify and exploit weak points across interconnected market infrastructure.

• Steps that need to be in place before vulnerabilities are discovered and used.

Pandey said the regulator is already engaging with market participants ahead of the release. He noted that in a connected securities market, even a single weak point can create risk beyond the entity where a breach happens.

Centralised Know Your Customer By June

Pandey set a June target for progress on a centralised Know Your Customer framework, aimed at enabling a single interoperable verification process across India's financial sector. Authentication is the sticking point. Without robust verification at the point of data entry, a shared Know Your Customer pool risks becoming unreliable. Stronger coordination among financial regulators is essential to making it work.

Finance Minister Sitharaman had earlier urged the Securities and Exchange Board of India to lead on developing comprehensive centralised Know Your Customer norms at the regulator's foundation day event.

Other Regulatory Moves

On commodity derivatives, Pandey said that the Reserve Bank of India and the Insurance Regulatory and Development Authority of India are not currently inclined to allow banks and insurance companies to invest in the segment, and acknowledged their rationale is valid.

The Securities and Exchange Board of India also proposed changes to securitised debt instrument norms on Monday:

• Allowing single-asset securitisation by Reserve Bank of India-regulated entities.

• Enabling the winding up of securitisation transactions.

• Easing structural restrictions to support market development.

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From Protection To Empowerment

Pandey used the conference to signal a broader shift in the regulator's philosophy, from investor protection toward investor empowerment. Access without awareness and choice without suitability are incomplete outcomes. Investor education needs to be practical and continuous, with risks, costs and grievance mechanisms explained clearly before people commit capital.

Sources:

The Telegraph

Moneycontrol