Mumbai, India — May 4, 2026
India’s market regulator Securities and Exchange Board of India (SEBI) has indicated that banks and insurance companies are unlikely to be allowed into the commodity derivatives segment anytime soon, citing reservations from key financial regulators.
Speaking at a capital markets conference hosted at the National Stock Exchange (NSE), SEBI Chairman Tuhin Kanta Pandey said both the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (IRDAI) are currently not in favor of permitting such entities to participate in commodity derivatives trading.
Regulators Cite Structural and Risk Concerns
According to Pandey, both regulators have “valid and well-considered reasons” behind their stance. He emphasized that the insurance sector, in particular, operates on a long-term investment model, which may not align with the high volatility typically associated with commodity derivatives markets.
“The nature of insurance investments requires stability and predictability, whereas commodity derivatives are inherently more volatile,” he noted, highlighting a key mismatch in risk profiles.
Limited Progress Despite Inter-Regulatory Discussions
SEBI has been in discussions with banking and insurance regulators on the matter, but the outcome so far has not been encouraging. Pandey acknowledged that the feedback from both the RBI and IRDAI has remained cautious, effectively putting the proposal on hold for now.
Rising Concerns Over Algorithmic Trading and Digital Risks
Beyond derivatives, the SEBI chief also raised concerns over increasing technological risks in financial markets. He pointed out that algorithmic trading systems operate at speeds far beyond human capability, which could amplify systemic risks if not properly monitored.
Pandey also warned that digital platforms are becoming potential channels for fraud, particularly as advanced artificial intelligence tools evolve.
“While AI can help identify vulnerabilities, it can also be misused at scale,” he said, underscoring the dual-edged nature of emerging technologies in financial markets.
CKYC 2.0 Framework in Advanced Stage
On the regulatory front, SEBI is progressing with the Central KYC (CKYC) 2.0 initiative aimed at creating a unified KYC system across the financial sector.
The project is being led by Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI), with active participation from multiple regulators. SEBI recently held discussions with CERSAI to identify key implementation challenges.
Pandey said the framework is currently under development and is expected to be finalized by July 2026, marking a significant step toward streamlining compliance and improving ease of doing business in India’s financial ecosystem.
India’s Capital Markets Gaining Global Traction
Highlighting the broader outlook, Pandey reiterated that India’s capital markets are emerging as a strong and competitive global investment destination. He previously shared these views at an international forum organized alongside the International Monetary Fund (IMF) and the World Bank Spring Meetings.
He also referenced engagements with industry bodies such as the Confederation of Indian Industry (CII) and the US-India Business Council, noting that strong macroeconomic fundamentals and a growing investor base are driving global confidence in India.
