,,ii #aahth ,,congress #ast ,session ,s4 #ceed ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,december #ah1 #bjbc ,mr4 ,warner 7for himself and ,mr4 ,kennedy7 introduced the following bill2 which was read twice and referred to the ,committee on ,banking1 ,housing1 and ,urban ,affairs ,a ,,bill ,to amend the ,financial ,stability ,act of #bjaj to provide the ,financial ,stability ,oversight ,council with duties regarding artificial intelligence in the financial sector1 and for other purposes4 #a4 ,short title ,this ,act may be cited as the ,financial ,artificial ,intelligence ,risk ,reduction ,act or the ,,fairr ,act4 #b4 ,definitions ,in this ,act1 the term artificial intelligence has the meaning given the term in section #ejjb of the ,national ,artificial ,intelligence ,initiative ,act of #bjbj 7#ae ,u4,s4,c4 #idja74 #c4 ,special provisions regarding artificial intelligence in the financial sector 7a7 ,in general ,subtitle ,a of the ,financial ,stability ,act of #bjaj 7#ab ,u4,s4,c4 #ecba et seq47 is amended by adding at the end the following3 #abf4 ,special provisions regarding artificial intelligence in the financial sector 7a7 ,coordination1 report1 and recommendations ,the ,council shall coordinate with member agencies with regard to potential risks to the stability of the financial system posed by artificial intelligence1 including-- 7#a7 direct the ,office of ,financial ,research1 as appropriate1 to conduct research into the uses of artificial intelligence by financial institutions and entities providing services to or performing functions on behalf of financial institutions2 7#b7 identify threats to the stability of the financial system posed by the use of artificial intelligence tools and technologies1 such as-- 7,a7 the generation and use of false representations of events or the likeness1 speech1 or actions of persons by malign actors to manipulate financial markets1 institutions1 or instruments1 or to cause disruption in financial markets and2 7,b7 any other acts or practices associated with the use or assistance of artificial intelligence tools or technologies that threaten the stability of the financial system2 7#c7 not later than #ahj days after the date of enactment of this section1 in consultation with the member agencies1 financial institutions1 securities market participants1 and entities providing services to or performing functions on behalf of financial institutions or securities markets participants1 submit to the ,committee on ,banking1 ,housing1 and ,urban ,affairs of the ,senate and the ,committee on ,financial ,services of the ,house of ,representatives a report that-- 7,a7 identifies the threats described in paragraph 7#b72 7,b7 identifies specific gaps in the existing regulations1 guidance1 and examination standards of the member agencies that prevent effective and comprehensive responses by each of the member agencies to the threats described in paragraph 7#b72 and 7,c7 makes specific recommendations for addressing the gaps identified in subparagraph 7,b71 including1 as appropriate1 recommendations regarding implementation of the recommendations in the ,cybersecurity ,information ,sheet published by the ,national ,security ,agency1 ,federal ,bureau of ,investigation1 and ,cybersecurity and ,infrastructure ,security ,agency on ,september #ab1 #bjbc2 and 7#d7 identify1 as appropriate1 opportunities for the use of artificial intelligence technologies in financial regulation and supervision1 specifying that any use of artificial intelligence by the agencies in regulation and supervision should be transparent and disclosed to their regulated entities as appropriate4 7b7 ,congressional review ,not later than #cj days after the date on which the relevant congressional committees receive the report required under subsection 7a71 the committees shall review the report and submit comments and recommendations thereon4 7c7 ,implementation of council recommendations 7#a7 ,in general ,upon review of comments and recommendations under subsection 7b71 the ,council shall commence action under the procedures prescribed in section #abj with regard to implementation of the recommendations by each of the member agencies4 7d7 ,congressional review act ,the provisions of chapter #h of title #e1 ,united ,states ,code1 shall apply as appropriate to rules issued by the member agencies under this section4 7e7 ,scenario-,based exercises ,the ,federal and ,banking ,information ,infrastructure ,committee sponsored by the ,president's ,working ,group on ,financial ,markets shall1 in consultation with private-sector entities and other relevant governmental entities-- 7#a7 initiate a series of scenario-based exercises to test the effectiveness of defenses against financial market disruptions associated with the use or assistance of artificial intelligence technologies2 and 7#b7 make recommendations for ongoing improvements in detection1 prevention1 and mitigation of such disruptions4 4 7b7 ,technical and conforming amendment ,the table of sections for the ,dodd-,frank ,wall ,street ,reform and ,consumer ,protection ,act 7#ab ,u4,s4,c4 #ecja7 is amended by inserting after the item relating to section #abe the following3 #abf4 ,special provisions regarding artificial intelligence in the financial sector4 4 #d4 ,enhanced authority to oversee third-party providers of artificial intelligence and other services to financial institutions ,section #bjf;,a of the ,federal ,credit ,union ,act 7#ab ,u4,s4,c4 #aghf;a7 is amended-- 7#a7 in subsection 7a77#a71 by striking that and inserting an2 7#b7 in subsection 7c77#b71 in the matter preceding subparagraph 7,a71 by inserting 1 in a manner and method prescribed by the ,board1 after ,board 2 and 7#c7 by striking subsection 7f74 #e4 ,regulation of service providers by the federal housing finance agency ,subpart ,a of part #b of subtitle ,a of the ,federal ,housing ,enterprises ,financial ,safety and ,soundness ,act of #aiib 7#ab ,u4,s4,c4 #deda et seq47 is amended by adding at the end the following3 #acbi4 ,regulation and examination of certain service providers ,whenever a regulated entity or the ,office of ,finance causes to be performed for itself1 by contract or otherwise1 any activity that is permissible for the regulated entity or the ,office of ,finance1 whether on or off its premises-- 7#a7 such performance shall be subject to regulation and examination by the ,director to the same extent as if such activity were being performed by such entity or ,office itself on its own premises2 and 7#b7 the regulated entity or ,office of ,finance shall notify the ,director of the existence of the service relationship not later than #cj days after the earlier of-- 7,a7 making of such service contract2 or 7,b7 the performance of the activity by the service provider4 4 #f4 ,treble penalties ,section #ba7;d77#c7 of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #ghu7d77#c77 is amended by adding at the end the following3 7,e7 ,amount of penalty for violation involving machine-manipulated media ,the amount of a civil penalty imposed under subparagraph 7,a77i7 for a violation involving the use of machine-manipulated media1 as defined in section #egbd of the ,damon ,paul ,nelson and ,matthew ,young ,pollard ,intelligence ,authorization ,act for ,fiscal ,years #bjah1 #bjai1 and #bjbj 7#ej ,u4,s4,c4 #cjbd note71 shall not exceed #c times the penalty otherwise determined under clause 7i71 7ii71 or 7iii7 of subparagraph 7,b74 4 #g4 ,liability ,the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq47 is amended by adding at the end the following3 #db4 ,liability 7a7 ,liability ,any person who1 directly or indirectly1 deploys or causes to be deployed1 an artificial intelligence model shall be deemed to satisfy the scienter1 other state of mind1 or negligence requirements of the ,federal securities laws with regard to any and all acts1 practices or conduct engaged in by such model1 and any outcome resulting from the use of such model1 and shall be liable to the same extent as if such person had committed such acts1 practices or conduct directly1 unless such person took reasonable steps to prevent such acts1 practices1 conduct and outcome1 which may include but are not limited to establishing1 maintaining and enforcing written policies and procedures reasonably designed to prevent violations of the ,federal securities laws4 7b7 ,waivers ,civil liability of a developer of an artificial intelligence model for design defects or breaches of implied warranties with respect to such a model out of which arise a violation of the ,federal securities laws may not be waived4 4