Warner, Kennedy Introduce Legislation to Require Financial Regulators to Respond to AI Market Threats
Dec 19 2023
WASHINGTON — U.S. Sens. Mark R. Warner (D-VA) and John Kennedy (R-LA), both members of the Senate Committee on Banking, Housing, and Urban Affairs, introduced the Financial Artificial Intelligence Risk Reduction Act, bipartisan legislation to require financial regulators to address uses of AI-generated content that could disrupt financial markets.
“AI has tremendous potential but also enormous disruptive power across a variety of fields and industries – perhaps none more so than our financial markets,” said Sen. Warner, a former business executive and venture capitalist. “The time to address those vulnerabilities is now.”
“AI is moving quickly, and our laws should do the same to prevent AI manipulation from rattling our financial markets. Our bill would help ensure that AI threats do not put Americans’ investments and retirement dreams at risk,” Sen. Kennedy said.
The legislation requires the Financial Stability Oversight Council (FSOC) to coordinate financial regulators’ response to threats to the stability of the markets posed by AI, including the use of “deepfakes” by malign actors and other practices associated with the use of AI tools that could undermine the financial system, such as trading algorithms. The legislation also requires FSOC to identify gaps in existing regulations, guidance, and exam standards that could hinder effective responses to AI threats, and implement specific recommendations to address those gaps.
In response to the potential magnitude of the threat, the Financial Artificial Intelligence Risk Reduction Act would also provide for treble penalties when AI is used in violations of Securities and Exchange Commission (SEC) rules, including acts of market manipulation and fraud. The legislation also makes clear that anyone who uses an AI model is responsible for making sure that everything that model does complies with all securities laws.
The legislation also provides the National Credit Union Administration (NCUA) and Federal Housing Finance Agency (FHFA) with the authority necessary to oversee AI service providers, similar to the authority the other financial regulators have had for decades.
A copy of the legislation is available here.