Select Federal financial regulatory agencies will be able to experiment with the use of artificial intelligence tools if a newly introduced bipartisan, bicameral bill is passed.
The Unleashing AI Innovation in Financial Services Act, introduced by Sens. Mike Rounds, R-S.D., and Martin Heinrich, D-N.M., and Reps. French Hill, R-Ark., and Ritchie Torres, D-N.Y., will allow designated officials to institute an AI “regulatory sandbox” – a framework that enables financial firms to test innovations on a small scale under regulator supervision – without risk of regulation or retroactive enforcement.
“The financial services industry has been using AI for decades, but as major advancements in the technology emerge, companies must be able to innovate,” said Sen. Rounds, who serves as co-chair of the Senate AI Caucus and ranking member of the Senate Banking Subcommittee on Securities, Insurance, and Investment.
“By creating these sandboxes, we aim to strike a balance between encouraging innovation and maintaining consumer protection, ultimately strengthening our financial system and keeping our country at the forefront of global financial technology,” he continued.
Rep. Hill said that the legislation would also allow Federal agencies to work with private industry to “collaborate and learn together.”
Agencies wanting to use AI sandboxes must submit an application that includes a description of the AI tool, the type of regulation the agency requests to be waived, and a proposal that offers an alternative way to comply with the waived regulation.
The AI sandboxes must also be able to demonstrate no risk to national security and consistency with anti-money laundering obligations and countering the financing of terrorism rules. They should serve as a benefit to the public through improved financial services access or consumer protection, as well as an enhancement to efficiency. Applicants must also provide a predicted economic impact.
The applications must have termination dates and proposed limitations on the size, scope, and growth of the project.
Federal financial regulatory agencies that would be able to use the AI tools according to the legislation include the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Consumer Financial Protection Bureau, the National Credit Union Administration, and the Federal Housing Finance Agency.
Federal financial agencies would have 90 days to review an application and respond with their decision, and agencies would have to provide annual outcome reports to the Senate Banking and House Financial Services committees.
