SEBI Advances Tokenised Bonds and AI Supervision as Pandey Calls for Stronger Tech Governance

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SEBI Advances Tokenised Bonds wants technology to make supervision more predictive Tokenised corporate bonds move closer to reality SEBI draws a line between technology and accountability Technology providers could become a market-wide risk Cybersecurity and resilience remain non-negotiable AI risks will require continuous monitoring Here’s what happened today and why traders reacted What SEBI’s technology push means for investors

India’s capital markets regulator is moving deeper into artificial intelligence and financial technology, but SEBI Chairman Tuhin Kanta Pandey has drawn a clear line: technology may be outsourced, but regulatory responsibility cannot.

The Securities and Exchange Board of India (SEBI) is working to implement the IOSCO AI supervisory toolkit while advancing a pilot for tokenised corporate bonds with the Reserve Bank of India (RBI).

For investors, the developments could reshape how securities markets are monitored, settled and protected as financial institutions increasingly rely on AI, cloud computing and other advanced technologies.

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SEBI Advances Tokenised Bonds wants technology to make supervision more predictive

SEBI’s technology push is not simply about automating existing regulatory processes.

Pandey said the regulator wants to use data, analytics and artificial intelligence to identify patterns that may not be visible through traditional supervisory methods.

The goal is to make market supervision increasingly predictive and help regulators identify emerging risks at an earlier stage.

“As market participants use advanced technologies at greater speed and scale, regulators must be able to supervise with comparable sophistication,” Pandey said.

This could eventually mean faster identification of unusual market activity, technology-related risks and potential threats to investor protection.

AI Supervision & Tech Governance

As algorithmic trading and AI tools grow, SEBI is upgrading its market oversight capabilities while putting strict guardrails in place.

IOSCO Toolkit Adoption: SEBI is working to adopt the International Organization of Securities Commissions (IOSCO) AI supervisory toolkit. This helps the regulator employ advanced analytics and predictive models to scan for complex market manipulation and network-based frauds.

Stringent Safety Controls: To counter the structural risks of AI—such as opacity, bias, and cybersecurity threats—SEBI is rolling out upcoming guidelines. The framework will enforce a tiered approach that mandates “kill-switch” mechanisms, clear human-in-the-loop governance, and robust data controls to maintain market trust.

Tokenised corporate bonds move closer to reality

Alongside the AI initiative, SEBI and the Reserve Bank of India are preparing a pilot for the tokenisation of corporate bonds under Demat 2.0.

The project combines tokenised securities with settlement through central bank digital currency (CBDC) and smart-contract functionality.

The pilot will explore whether technology can make corporate bond settlement faster while automating parts of asset servicing.

Pandey said three issuers have already issued tokenised corporate bonds under Demat 2.0 over the past few days.

For investors, this could become an important development in India’s corporate bond market if tokenisation eventually improves settlement efficiency, transparency and operational processes.

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Tokenised Bonds & “Demat 2.0”

SEBI and the Reserve Bank of India (RBI) are collaborating to launch Demat 2.0, a next-generation digital infrastructure that utilizes blockchain and Distributed Ledger Technology (DLT).

Live Progress: The pilot phase is actively under way, with three market issuers having already rolled out tokenised corporate bonds under the Demat 2.0 architecture.

Key Innovations: The system combines tokenised securities with settlement powered by Central Bank Digital Currency (CBDC) and smart-contract functionalities.

Market Benefits: This infrastructure aims to enable near-instantaneous, simultaneous transfer of funds and securities, automate coupon payments, eliminate settlement risks, and significantly enhance fixed-income accessibility across the country.

SEBI draws a line between technology and accountability

Perhaps the strongest message from Pandey was directed at financial institutions using external technology providers.

Banks, brokers, market intermediaries and other regulated entities are increasingly dependent on AI systems, cloud platforms and technology vendors.

But SEBI does not want this dependence to create a loophole in regulatory responsibility.

“A market intermediary or institution cannot transfer responsibility for compliance, resilience, or market integrity to a technology provider or a vendor,” Pandey said.

In simple terms, outsourcing technology does not mean outsourcing accountability.

The regulated entity remains responsible for ensuring that its systems operate safely and comply with regulatory requirements.

Tech Scrutiny & Accountability Rules

The regulator outlined strict parameters to manage the systemic risks arising from concentrated dependencies on a few dominant tech providers:

Proximity-Based Scrutiny: Regulatory eyes will intensify the closer a technology provider sits to core trading, settlement systems, sensitive data storage, or investor outcomes.
Non-Negotiable Contracts: Intermediaries must ensure their vendor contracts preserve explicit rights for regulated entities, auditors, and SEBI to access critical systems, data logs, and premises.
Continuous Testing: Oversight must be dynamic rather than a one-time onboarding check, mandating continuous testing, mandatory change notifications, and human-in-the-loop oversight to counter evolving AI models.

Technology providers could become a market-wide risk

SEBI is also considering how technology vendors should be supervised.

Pandey said oversight should be risk-based and proportionate, rather than automatically subjecting every technology provider to the same regulatory requirements as market intermediaries.

The level of scrutiny could increase depending on how closely a provider is connected to trading, settlement, sensitive information and investor outcomes.

This becomes particularly important when one technology provider serves multiple financial institutions.

A failure at such a provider could potentially spread across several institutions and turn an individual technology problem into a market-wide risk.

However, Pandey indicated that this does not necessarily mean every major technology provider needs to be directly regulated like a market intermediary.

Cybersecurity and resilience remain non-negotiable

SEBI’s approach is expected to focus heavily on contracts and governance arrangements between regulated firms and technology providers.

Contracts should ensure that regulated entities, auditors and regulators retain access to critical data, systems, premises and personnel.

Governance, cybersecurity, data protection, business continuity and incident management will remain key requirements.

At the same time, firms would retain flexibility over which technology they use to meet those outcomes.

This approach could give financial institutions room to innovate while maintaining safeguards for investors and the broader financial system.

AI risks will require continuous monitoring

Another important issue is that technology risks do not end once a vendor is approved.

AI models, software and technology architectures can change over time. As a result, critical technology providers may require continuous testing, change notifications and periodic reassessment.

Pandey also warned against relying on a lack of transparency as an excuse for weaker oversight.

“Opacity cannot dilute accountability,” he said.

Where transparency is limited, regulators could require additional testing, stronger human oversight and appropriate disclosures.

Here’s what happened today and why traders reacted

Speaking at the Global Fintech Fest 2026, Pandey said SEBI is strengthening its use and oversight of emerging technologies in India’s securities market.

The regulator is working to implement the International Organization of Securities Commissions (IOSCO) supervisory toolkit for artificial intelligence.

The toolkit is expected to strengthen risk management and support a more agile AI governance framework for India’s securities market.

SEBI had earlier indicated that the IOSCO toolkit would be integrated into its broader AI strategy for regulated entities.

The message is significant as AI adoption accelerates across trading, investment management, risk assessment and compliance.

What SEBI’s technology push means for investors

For investors and traders, SEBI’s technology strategy could ultimately lead to a more closely monitored and resilient securities market.

Better use of AI supervision and data analytics could help identify emerging risks earlier, while tokenised corporate bonds could improve the efficiency of India’s bond market.

However, the transition also creates new risks around cybersecurity, data protection, system failures and dependence on technology vendors.

The key takeaway for investors is that SEBI is embracing financial technology, but it is not willing to compromise accountability in the process.

As AI and tokenisation become more common in India’s financial markets, traders and investors will need to watch not only market performance but also how effectively regulators manage the technology risks behind the system.