India's markets regulator SEBI prepares an advisory on emerging AI risks in financial markets, as the first wave of regulator-issued AI risk guidance reaches capital markets supervision
India's Securities and Exchange Board (SEBI) — the country's primary capital markets regulator, broadly analogous to the UK's Financial Conduct Authority (FCA) — is preparing to issue an advisory on emerging AI risks in financial markets, with publication expected imminently. The move places SEBI among the first major securities regulators globally to move from policy discussion to formal regulatory guidance on AI in market-facing activities. The advisory is expected to address risks arising from the increasing use of AI tools in algorithmic trading (automated buying and selling of securities using pre-programmed instructions), investment decision-making, and market surveillance. The concern driving regulators globally is that AI systems can introduce systemic risks — correlated behaviour across large numbers of market participants using similar models — that traditional supervision frameworks were not designed to catch. For London practitioners, the SEBI advisory is a leading indicator of what the FCA is likely to follow: the regulator has already signalled interest in AI in financial services through its innovation programmes, and the EU AI Act — which formally classifies high-risk AI systems including those used in critical financial infrastructure — imposes compliance obligations on UK-adjacent firms serving EU clients. The direction of travel across jurisdictions is consistent: regulators are moving from general principles to sector-specific AI risk frameworks.
Why this matters
SEBI's advisory will be closely watched by compliance teams at global investment banks and asset managers with Indian market operations — including many firms headquartered or with significant operations in London. More broadly, it reflects a global convergence toward AI-specific regulatory guidance in financial services: the EU AI Act has already imposed tiered obligations on AI systems used in finance, and the FCA has AI risk on its supervisory agenda. For law firms, this creates demand for regulatory impact assessment work — advising financial institution clients on how emerging AI guidance applies to their existing tool deployments, and drafting AI governance policies that satisfy multiple jurisdictions simultaneously.
On the Ground
A trainee on a financial regulation or technology team would be drafting a regulatory impact assessment memo mapping SEBI's forthcoming guidance against a client's existing AI tool inventory, and preparing an AI governance policy draft benchmarked against both the EU AI Act's high-risk system requirements and FCA innovation guidance.
Interview prep
Soundbite
SEBI's AI advisory is the template regulators worldwide will adapt — FCA watchers should treat it as a preview of what's coming to the City.
Question you might get
“How does the EU AI Act classify AI systems used in financial services, and what compliance obligations does it impose on firms using AI in investment decision-making?”
Full answer
India's SEBI is preparing a formal advisory on AI risks in financial markets, making it one of the first major securities regulators to move from principle to published guidance in this area. For City practitioners, the significance is the precedent-setting effect: when SEBI, the FCA, and the EU's regulators all issue AI risk frameworks in the same period, global financial institutions need multi-jurisdictional compliance programmes rather than country-by-country responses. The structural driver is the rapid deployment of AI in trading, credit assessment, and market surveillance — creating systemic risk that existing supervisory frameworks cannot adequately capture. This suggests a sustained period of AI governance advisory work for regulatory practices at firms serving financial institution clients.
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