Capital markets regulator to strengthen risk-based supervision; working group planned to create technology roadmap for market infrastructure institutions
Mumbai (Economy India): In a major step towards strengthening the cyber resilience of India’s capital markets, Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey on Friday said the regulator is developing an artificial intelligence (AI)-powered tool to analyse the cyber safety preparedness of entities regulated by it.
The initiative is aimed at enhancing risk-based supervision, improving regulatory oversight, and ensuring that India’s rapidly digitising capital market ecosystem remains secure against emerging cyber threats.
Pandey made the announcement while speaking at the 40th anniversary celebration of the BSE Sensex, held at the Bombay Stock Exchange, the country’s oldest stock bourse.
AI-Driven Inspection Tool Under Development
Highlighting Sebi’s focus on technology-led supervision, Pandey said the regulator is moving away from traditional compliance checks towards more data-driven and predictive regulatory mechanisms.
“An AI-driven inspection tool is currently under development to strengthen risk-based supervision of regulated entities,” Pandey said.
The proposed tool is expected to:
- Analyse cyber security frameworks of regulated entities
- Identify vulnerabilities and risk patterns
- Enable early detection of potential cyber threats
- Improve supervisory efficiency through automation
Once operational, the AI-based system will allow Sebi to assess cyber preparedness in real time or near real time, reducing reliance on periodic manual inspections.
Why Cyber Safety Is a Growing Concern
India’s capital markets have undergone rapid digital transformation in recent years. Online trading platforms, algorithmic trading, cloud-based infrastructure, and digital onboarding have significantly improved efficiency—but they have also expanded the cyber risk surface.
Market participants including:
- Stock brokers
- Asset management companies
- Depositories
- Clearing corporations
- Portfolio managers
are increasingly exposed to risks such as:
- Data breaches
- Ransomware attacks
- System outages
- Manipulation of trading systems
Regulators globally have been emphasising cyber resilience as a systemic risk issue, rather than a purely technical concern. Sebi’s AI initiative aligns with this global regulatory trend.
Strengthening Risk-Based Supervision
Sebi has gradually shifted towards risk-based supervision, where regulatory resources are focused on entities and activities that pose higher systemic risks.
The AI-driven inspection tool is expected to:
- Prioritise high-risk entities for deeper scrutiny
- Reduce regulatory burden on low-risk entities
- Improve consistency and objectivity in inspections
- Enhance supervisory outcomes without increasing compliance costs
This approach also reflects Sebi’s intent to balance market development with investor protection, especially as market participation continues to expand.
Technology Roadmap for Market Infrastructure Institutions
In addition to the AI inspection tool, Pandey said Sebi is also working on a long-term technology roadmap for Market Infrastructure Institutions (MIIs).
These include:
- Stock exchanges
- Clearing corporations
- Depositories
Pandey said Sebi is in the process of constituting a working group to develop this roadmap.
The proposed roadmap is expected to focus on:
- Cyber security standards
- System resilience and redundancy
- Adoption of emerging technologies
- Business continuity planning
- Regulatory technology (RegTech) integration
MIIs form the backbone of India’s capital markets, and any technological disruption at this level can have system-wide implications.
Sensex at 40: A Symbol of Market Evolution
Pandey’s remarks came during celebrations marking 40 years of the BSE Sensex, India’s benchmark equity index that has tracked the country’s economic and financial evolution since 1986.
Over the decades, the Indian capital market has:
- Expanded its investor base
- Adopted electronic trading
- Strengthened disclosure and governance norms
- Integrated with global financial systems
The move towards AI-driven supervision reflects the next phase of regulatory evolution, aligned with the growing scale and complexity of the markets.
Global Context: Regulators Turning to AI
Sebi’s initiative mirrors steps taken by global regulators such as:
- The US Securities and Exchange Commission (SEC)
- The UK’s Financial Conduct Authority (FCA)
- The European Securities and Markets Authority (ESMA)
These regulators are increasingly using AI, machine learning, and advanced analytics to:
- Monitor market abuse
- Detect anomalies
- Strengthen cyber oversight
For India, adopting similar tools is critical as it positions itself as one of the world’s fastest-growing capital markets.
Implications for Market Participants
For regulated entities, Sebi’s move signals:
- Greater emphasis on cyber governance
- Need for continuous cyber risk assessment
- Stronger internal controls and reporting mechanisms
Entities with weak cyber frameworks may face:
- Higher supervisory scrutiny
- Compliance interventions
- Increased regulatory engagement
At the same time, firms that invest in robust cyber systems may benefit from lower regulatory friction under risk-based supervision.
Looking Ahead
While Sebi has not announced a specific timeline for rolling out the AI-driven inspection tool, the initiative underscores the regulator’s intent to:
- Modernise supervision
- Improve market integrity
- Enhance investor confidence
As cyber threats continue to evolve, Sebi’s technology-led approach could play a crucial role in ensuring that India’s capital markets remain secure, resilient, and globally competitive.
(Economy India)
