SEBI Chairman Tuhin Kanta Pandey has announced that the regulator is actively drafting a comprehensive framework governing the use of AI in capital markets. The framework explicitly supports AI deployment for fraud detection and investor servicing, but draws a firm line on autonomous algorithmic execution.
The centrepiece of SEBI's approach is a "Human-in-the-Loop" (HITL) mandate: no AI algorithm can hold final, independent control over trading execution or portfolio management decisions. A human supervisor must always remain in the control loop, with oversight authority over machine decisions.
SEBI's rationale rests on three pillars. First, the mandate prevents unchecked algorithms from triggering cascading market sell-offs—the flash crash risk inherent in machine-to-machine feedback loops. Second, it establishes human accountability: regulators can subpoena a compliance officer, not a piece of code. Third, it kills the 'black box' problem, ensuring AI models managing Indian wealth operate transparently without making biased decisions based on opaque parameters.
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