What Happened
- SEBI has notified the Securities and Exchange Board of India (Intermediaries) (Amendment) Regulations, 2026 by publishing them in the Official Gazette on April 16, 2026.
- The amendments introduce a new chapter (Chapter IIIB) mandating accountability for all SEBI-regulated entities that use Artificial Intelligence (AI) or Machine Learning (ML) tools in their operations.
- A second new chapter (Chapter IIIC) mandates third-party verification of past risk and return metrics claimed by Investment Advisers, Research Analysts, and Algorithmic Trading Providers.
- Revisions to the "Fit and Proper Person" criteria have been introduced to balance principle-based regulatory objectives with market integrity.
- The regulations also introduce summary proceedings for minor violations (Regulation 30A), empowering senior SEBI officers (not just whole-time members) to initiate disciplinary action, enabling faster enforcement.
Static Topic Bridges
SEBI (Intermediaries) Regulations, 2008
The SEBI (Intermediaries) Regulations, 2008 form the backbone of India's securities market intermediary regulation framework. They set common standards for registration, conduct, and oversight of all SEBI-registered intermediaries — including stockbrokers, depository participants, investment advisers, merchant bankers, portfolio managers, research analysts, and others. The regulations establish the "Fit and Proper Person" criterion as a pre-condition for registration and continued operation.
- "Fit and Proper Person" criteria consider: financial integrity, absence of convictions, competence, and absence of conflicts of interest.
- SEBI can suspend, cancel, or refuse registration to any intermediary found not meeting the fit and proper standard.
- SEBI regulates approximately 90,000 intermediaries across market segments.
- The SEBI (Stock Brokers) Regulations, 2026 — a separate regulation notified earlier in 2026 — restructured the broking framework, replacing the 1992 stockbroker regulations.
Connection to this news: The 2026 amendment tightens the fit and proper framework by introducing faster enforcement mechanisms and expanding the scope of regulatory oversight to cover technology deployments like AI/ML — a significant evolution of a framework originally designed for human intermediaries.
Regulation of AI in Financial Services
The use of AI and ML in financial services — for trading algorithms, client onboarding, credit scoring, fraud detection, and investment advice — is growing rapidly but raises concerns about accountability, systemic risk, and consumer protection. The question of who is liable when an AI-driven recommendation causes losses has become a critical regulatory challenge globally.
- Under the new Chapter IIIB, SEBI-regulated entities using AI/ML are solely responsible for data privacy, security, integrity, output reliability, and legal compliance — whether using self-designed or third-party tools.
- The principle of non-delegable responsibility: outsourcing AI functions to vendors does not transfer regulatory liability.
- Globally, the EU's AI Act (2024) classifies high-risk AI applications (including credit scoring) under a mandatory conformity assessment regime.
- SEBI's Algorithmic Trading framework (2012, revised 2021) already requires exchanges and brokers to maintain audit trails for all algo orders.
Connection to this news: The insertion of Chapter IIIB makes SEBI one of the first Indian regulators to codify AI accountability obligations for its regulated entities, signalling a move from informal guidance to enforceable compliance requirements for technology-driven market participants.
Verification of Past Performance Claims in Financial Advisory
The financial services industry has long struggled with the problem of misleading performance claims — advisers selectively highlighting past successes while obscuring failures. SEBI's new Chapter IIIC addresses this by mandating independent verification of past risk and return metrics before they can be cited in marketing or client communications.
- Verification will be conducted by SEBI-recognised credit rating agencies acting as "Past Risk and Return Verification Agency" (PRRVA).
- Entities covered: Investment Advisers (IAs), Research Analysts (RAs), and Algorithmic Trading Providers empanelled with stock exchanges.
- This mirrors similar requirements in other jurisdictions, such as the GIPS (Global Investment Performance Standards) framework widely adopted in fund management.
- SEBI registered approximately 1,300 Investment Advisers and 700 Research Analysts as of 2025.
Connection to this news: Mandatory third-party verification of performance claims will reduce the information asymmetry between financial advisers and retail investors — a key investor protection objective consistent with SEBI's broader push toward regulated financial advice and away from unverified social media "tips" and finfluencer content.
Key Facts & Data
- Amendment notification date: April 16, 2026 (Official Gazette)
- Parent regulation: SEBI (Intermediaries) Regulations, 2008
- New Chapter IIIB: AI/ML accountability for all SEBI-regulated entities
- New Chapter IIIC: Mandatory past performance verification by SEBI-recognised agency
- Regulation 30A: Summary proceedings for minor violations
- SEBI established: 1988 (statutory body under SEBI Act, 1992)
- SEBI regulates: approximately 90,000 intermediaries
- SEBI's regulatory jurisdiction: primary market, secondary market, mutual funds, portfolio managers, investment advisers, and research analysts
- Key background regulation: SEBI (Stock Brokers) Regulations, 2026 (notified earlier in 2026) replaced the 1992 framework