SEBI’s AI just caught something it never expected in India’s PMS industry

India’s market regulator says its artificial intelligence tools have started flagging something it did not expect to find outside the mutual fund world. The Securities and Exchange Board of India (SEBI) said on Friday that AI-generated alerts are now surfacing patterns consistent with front-running inside the portfolio management services (PMS) industry, a corner of the market it had long assumed was largely clean of the practice.

Manoj Kumar, executive director of SEBI, made the disclosure at the Association of Portfolio Managers in India’s (APMI) PMS Leadership Conclave 2026 in Chennai. ‘Recently, we have noticed our AI generating enough alerts, and over a period of time, the patterns emerging from those alerts suggest that a certain amount of front-running is also happening in the PMS industry,’ he said. ‘We always believed this was something largely confined to the mutual fund space. But of late, we have observed that it is happening in PMS as well. We are analysing how it has impacted investors.’

Front-running refers to trading ahead of a client’s order using advance knowledge of it, a practice regulators treat as a serious breach of fiduciary duty. Kumar said SEBI is not rushing straight to punitive action for every case it uncovers. ‘As long as these violations remain unintended, we are very, very accommodative. We will listen to your viewpoint,’ he said, describing the regulator’s approach as a ‘handholding’ one meant to build awareness across the PMS industry rather than simply penalise it.

That leniency has a limit, however. Kumar said anyone who deliberately engaged in practices seen as even remotely impermissible would, sooner or later, invite regulatory scrutiny and enforcement. Alongside the AI findings, he confirmed SEBI has begun revamping the regulatory framework governing PMS providers, with a consultation paper expected soon aimed at making compliance easier to understand and improving ease of doing business under the licence.

Speaking separately to TOI on the sidelines of the conclave, APMI chairman Biharilal Deora said the coming review would support the industry’s growth. The PMS framework was last comprehensively reviewed in 2020, after the original rules were introduced in 1993, and is now being revisited again within a much shorter gap than before. The PMS industry’s assets under management currently stand at Rs 42.5 lakh crore and are expected to keep growing.

Wikimedia Commons/by Rakesh from Bangalore