Summary:
SEBI plans to adopt the IOSCO supervisory toolkit for AI to strengthen risk management and market oversight in India’s securities market. The regulator is also advancing Demat 2.0, combining tokenised securities, CBDC-based settlement and smart contracts to modernise financial infrastructure.
The Securities and Exchange Board of India (SEBI) is strengthening its technology framework for monitoring the securities market by implementing a global supervisory toolkit for artificial intelligence (AI). The move is aimed at improving risk management and creating a more flexible AI governance framework as financial institutions increasingly adopt advanced technologies.
SEBI Chairman Tuhin Kanta Pandey announced that the regulator is working on adopting the International Organization of Securities Commissions (IOSCO) supervisory toolkit for AI usage in the Indian securities market. The framework will help regulators monitor emerging risks linked to AI adoption among market participants and regulated entities.
The initiative comes as financial markets are becoming increasingly technology-driven, with institutions using AI for data analysis, automation, customer services, risk assessment and investment-related activities. SEBI aims to ensure that regulatory capabilities develop alongside technological advancements.
Focus On Risk Management And Predictive Regulation
Traditional regulatory methods often depend on periodic monitoring and post-event reviews. With the adoption of AI-based supervisory tools, SEBI intends to move towards more predictive supervision by identifying unusual patterns and potential risks at an early stage.
The regulator believes that as market participants use advanced technologies at greater speed and scale, supervisors also need comparable capabilities to maintain market integrity. However, SEBI has highlighted that while technology solutions can be outsourced, accountability for compliance and investor protection will remain with regulated entities.
The AI toolkit developed under IOSCO provides a framework for regulators to assess risks related to AI governance, model management, third-party technology dependence, disclosures and reporting systems.
Demat 2.0 And Tokenised Securities Initiative
Alongside AI adoption, SEBI and the Reserve Bank of India (RBI) are also working on modernising market infrastructure through the Demat 2.0 initiative. The project combines tokenised securities, digital settlement assets through central bank digital currency (CBDC) and smart contracts.
The initiative aims to enable faster settlement, automate asset servicing activities and reduce operational risks. Under the pilot phase, tokenised corporate bonds worth ₹1,025 crore have already been issued by companies including REC Limited, L&T Limited and IIFL, targeting institutional investors initially.
The system is designed to integrate with RBI’s wholesale CBDC platform through the Unified Market Interface (UMI), allowing securities and funds settlement to happen simultaneously. Smart contracts will also help automate activities such as interest payments and redemption processing.
Impact On Financial Markets And Technology Companies
The adoption of AI-based supervision is expected to improve transparency and strengthen confidence in India’s capital markets. Faster detection of risks, improved monitoring systems and automated compliance processes could enhance the efficiency of market operations.
For technology companies, financial platforms and firms providing AI, cybersecurity and regulatory technology solutions, increased adoption of such frameworks could create new opportunities. However, the impact will depend on how quickly institutions integrate these technologies and comply with evolving regulatory requirements.
