,,ib ,union ,calendar ,no4 #fai #aaith ,,congress #b;d ,session ,h4 ,r4 #dhja ,report ,no4 #aai-gac ,,in ,,the ,,house ,,of ,,representatives ,july #bi1 #bjbe,mr4 ,hill of ,arkansas 7for himself1 ,mr4 ,torres of ,new ,york1 ,mr4 ,steil1 and ,mr4 ,gottheimer7 introduced the following bill2 which was referred to the ,committee on ,financial ,services ,june #bd1 #bjbf,reported with an amendment1 committed to the ,committee of the ,whole ,house on the ,state of the ,union1 and ordered to be printed,strike out all after the enacting clause and insert the part printed in italic,for text of introduced bill1 see copy of bill as introduced on ,july #bi1 #bjbe ,a ,,bill ,to establish ,,ai ,innovation ,labs that permit certain persons to experiment with artificial intelligence without expectation of enforcement actions4 #a4 ,short title ,this ,act may be cited as the ,unleashing ,,ai ,innovation in ,financial ,services ,act4 #b4 ,definitions ,in this section3 7#a7 ,,ai test project ,the term ,,ai test project means a financial product1 service1 or activity-- 7,a7 that falls under the jurisdiction of a financial regulatory agency2 7,b7 that makes substantial use of artificial intelligence2 7,c7 that is1 or may be1 subject to a ,federal regulation or ,federal statute2 and 7,d7 for which a regulated entity submits an application for the waiver or modification of an applicable regulation subject to an alternative compliance strategy4 7#b7 ,appropriate financial regulatory agency ,the term appropriate financial regulatory agency means-- 7,a7 the appropriate ,federal banking agency1 as defined in section #c of the ,federal ,deposit ,insurance ,act 7#ab ,u4,s4,c4 #ahac71 with respect to an institution described in subsection 7q7 of that section2 7,b7 the ,securities and ,exchange ,commission1 with respect to an institution not described in subparagraph 7,a7 that is-- 7i7 any broker or dealer that is registered with the ,commission under the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7ii7 any investment company that is registered with the ,commission under the ,investment ,company ,act of #aidj 7#ae ,u4,s4,c4 #hj;a-#a et seq472 7iii7 any investment adviser that is registered with the ,commission under the ,investment ,advisers ,act of #aidj 7#ae ,u4,s4,c4 #hj;b-#a et seq472 7iv7 any clearing agency registered with the ,commission under the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7v7 any nationally recognized statistical rating organization registered with the ,commission under the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7vi7 any transfer agent registered with the ,commission under the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7vii7 any exchange registered as a national securities exchange with the ,commission under the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7viii7 any national securities association registered with the ,commission under the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7ix7 any securities information processor registered with the ,commission under the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7x7 the ,municipal ,securities ,rulemaking ,board established under the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7xi7 the ,public ,company ,accounting ,oversight ,board established under the ,sarbanes-,oxley ,act of #bjjb 7#ae ,u4,s4,c4 #gbaa et seq472 7xii7 the ,securities ,investor ,protection ,corporation established under the ,securities ,investor ,protection ,act of #aigj 7#ae ,u4,s4,c4 #gh;aaa et seq472 and 7xiii7 any security-based swap execution facility1 security-based swap data repository1 security-based swap dealer1 or major security-based swap participant registered with the ,commission under the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7,c7 the ,bureau of ,consumer ,financial ,protection1 with respect to a covered person1 as defined in section #ajjb of the ,consumer ,financial ,protection ,act of #bjaj 7#ab ,u4,s4,c4 #edha71 that does not have an appropriate financial regulatory agency under subparagraph 7,a71 7,b71 7,d71 or 7,e7 of this paragraph2 7,d7 the ,national ,credit ,union ,administration1 with respect to an insured credit union1 as defined in section #aja of the ,federal ,credit ,union ,act 7#ab ,u4,s4,c4 #ageb72 and 7,e7 the ,federal ,housing ,finance ,agency1 with respect to-- 7i7 a ,federal ,home ,loan ,bank2 7ii7 the ,federal ,home ,loan ,bank ,system2 7iii7 the ,federal ,national ,mortgage ,association2 and 7iv7 the ,federal ,home ,loan ,mortgage ,corporation4 7#c7 ,artificial intelligence2 ,,ai ,the terms artificial intelligence and ,,ai have the meaning given the term artificial intelligence in section #ejjb of the ,national ,artificial ,intelligence ,initiative ,act of #bjbj 7#ae ,u4,s4,c4 #idja74 7#d7 ,commission ,the term ,commission means the ,securities and ,exchange ,commission4 7#e7 ,federal securities laws ,the term ,federal securities laws means-- 7,a7 the ,securities ,act of #aicc 7#ae ,u4,s4,c4 #gg;a et seq472 7,b7 the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;a et seq472 7,c7 the ,sarbanes-,oxley ,act of #bjjb 7#ae ,u4,s4,c4 #gbja et seq472 7,d7 the ,trust ,indenture ,act of #aici 7#ae ,u4,s4,c4 #gg;aaa et seq472 7,e7 the ,investment ,company ,act of #aidj 7#ae ,u4,s4,c4 #hj;a-#a et seq472 7,f7 the ,investment ,advisers ,act of #aidj 7#ae ,u4,s4,c4 #hj;b-#a et seq472 7,g7 the ,jumpstart ,our ,business ,startup ,act 7,public ,law #aab-ajf2 #abf ,stat4 #cjf72 and 7,h7 the ,dodd-,frank ,wall ,street ,reform and ,consumer ,protection ,act 7,public ,law #aaa-bjc2 #abd ,stat4 #acgf74 7#f7 ,financial product1 service1 or activity ,the term financial product1 service1 or activity-- 7,a7 includes-- 7i7 a financial product or service1 as defined in section #ajjb of the ,consumer ,financial ,protection ,act of #bjaj 7#ab ,u4,s4,c4 #edha72 7ii7 activities that are financial in nature1 as defined in section #d7k77#d7 of the ,bank ,holding ,company ,act of #aief 7#ab ,u4,s4,c4 #ahdc7k77#d772 7iii7 any financial product or service provided by a person regulated by the ,commission1 as defined in section #ajjb of the ,consumer ,financial ,protection ,act of #bjaj 7#ab ,u4,s4,c4 #edha72 and 7iv7 the offer or sale of any security subject to the ,federal securities laws2 7,b7 includes any internal activity of a regulated entity that is carried out in furtherance of the offering or sale of a product1 service1 or activity described in subparagraph 7,a72 and 7,c7 does not include the business of insurance1 as defined in section #ajjb of the ,consumer ,financial ,protection ,act of #bjaj 7#ab ,u4,s4,c4 #edha74 7#g7 ,financial regulatory agency ,the term financial regulatory agency means-- 7,a7 the ,board of ,governors of the ,federal ,reserve ,system2 7,b7 the ,federal ,deposit ,insurance ,corporation2 7,c7 the ,office of the ,comptroller of the ,currency2 7,d7 the ,securities and ,exchange ,commission2 7,e7 the ,bureau of ,consumer ,financial ,protection2 7,f7 the ,national ,credit ,union ,administration2 and 7,g7 the ,federal ,housing ,finance ,agency4 7#h7 ,regulated entity ,the term regulated entity means an entity regulated1 or insured in the case of a credit union1 by any financial regulatory agency4 #c4 ,,ai ,innovation ,labs ,each financial regulatory agency shall establish1 or identify an office1 division1 or department of the agency that shall serve as1 an ,,ai ,innovation ,lab to enable regulated entities to experiment with ,,ai test projects without unnecessary or unduly burdensome regulation or expectation of enforcement actions1 including enforcement actions that disincentivize the substantial use of artificial intelligence to enhance regulatory compliance practices1 pursuant to the approval of an application under section #d4 #d4 ,use of artificial intelligence by regulated financial entities 7a7 ,application submission 7#a7 ,in general ,beginning one year after the date of enactment of this ,act1 a regulated entity may submit to the appropriate financial regulatory agency an application1 on a form determined by the appropriate financial regulatory agency1 to engage in an ,,ai test project through an ,,ai ,innovation ,lab4 7#b7 ,contents ,an application submitted under paragraph 7#a7 shall include-- 7,a7 a description of the ,,ai test project proposed to be carried out by the regulated entity1 including-- 7i7 the type and capabilities of the relevant ,,ai technologies1 systems1 and applications2 and 7ii7 the purposes and goals of the ,,ai test project2 7,b7 an alternative compliance strategy that-- 7i7 identifies a regulation issued by a financial regulatory agency that the regulated entity requests to be waived or modified2 7ii7 proposes an alternative method for the regulated entity to comply with the ,federal statute under which the regulation identified in clause 7i7 is promulgated and the purpose of such regulation1 including an explanation as to why the alternative method is essential to the operation of the regulated entity and how the regulated entity would effectively manage risks1 including cybersecurity risks1 associated with the ,,ai test project2 7iii7 describes applicable plans and policies related to risk assessments1 testing1 controls1 documentation1 and monitoring and their role in managing risks described under clause 7ii72 and 7iv7 contains policies for the regulated entity to maintain1 consistent with applicable law1 cybersecurity standards1 and contractual limitations and obligations1 records of the activities of the ,,ai test project1 so long as such policies do not require the regulated entity to maintain any records that the regulated entity is not permitted to maintain pursuant to another law or any contractual limitation or obligation2 7,c7 an explanation of how under the strategy described in subparagraph 7,b71 the ,,ai test project-- 7i7 would serve the public interest1 improve consumer or investor access to a financial product1 service1 or activity1 or promote consumer or investor protection2 7ii7 would enhance efficiency or operations1 foster innovation or competitiveness1 improve risk management and security1 including cybersecurity1 or enhance regulatory compliance2 7iii7 would not present-- 7,i7 a significant risk of loss to the ,deposit ,insurance ,fund or the ,national ,credit ,union ,share ,insurance ,fund where the regulated entity is an insured depository institution or insured credit union2 or 7,,ii7 a systemic risk to the financial system of the ,united ,states2 7iv7 is consistent with the purposes of the anti-money laundering and countering the financing of terrorism obligations under subchapter ,,ii of chapter #ec of title #ca1 ,united ,states ,code2 and 7v7 would not present a national security risk to the ,united ,states2 7,d7 a proposed date on which the ,,ai test project would terminate and an explanation why such termination date would be appropriate2 7,e7 proposed limitations on the size1 scope1 and growth of the ,,ai test project2 7,f7 a detailed business plan2 and 7,g7 an estimate of the economic1 market1 operational1 and public interest impact of the ,,ai test project if approved4 7#c7 ,joint applications ,two or more regulated entities may submit a joint application to the same financial regulatory agency under paragraph 7#b74 7#d7 ,regulations of other agencies 7,a7 ,in general ,notwithstanding paragraph 7#b71 a regulated entity may submit an application under this subsection for an alternative compliance strategy for a regulation issued or enforced by a financial regulatory agency that is not the appropriate financial regulatory agency for the regulated entity4 7,b7 ,requirements ,an application described in subparagraph 7,a7 shall be subject to the same requirements as an application described in paragraph 7#b71 except that-- 7i7 the regulated entity shall submit the application to-- 7,i7 the appropriate financial regulatory agency2 and 7,,ii7 any other financial regulatory agency that-- 7aa7 issued the regulation that is the subject of the alternative compliance strategy and has jurisdiction over the regulated entity with respect to such regulation2 or 7bb7 enforces the regulation that is the subject of the alternative compliance strategy with respect to the regulated entity2 and 7ii7 the ,,ai test project may not take effect unless the application is jointly approved by-- 7,i7 the appropriate financial regulatory agency2 and 7,,ii7 each other financial regulatory agency described in clause 7i77,,ii74 7#e7 ,notice ,a regulated entity that is regulated by1 or subject to regulations that are enforced by1 more than #a financial regulatory agency shall provide notice of any application submitted to the appropriate financial regulatory agency under this section to each such financial regulatory agency not later than #e business days after the regulated entity submits the application to the appropriate financial regulatory agency4 7#f7 ,notice of intervening agency 7,a7 ,notice of intervention ,a financial regulatory agency that receives a notice under paragraph 7#e7 with respect to an application regarding a regulation that such agency issued or enforces may1 within #cj days of receiving such notice1 issue a notice of intervention to the regulated entity and the appropriate financial regulatory agency of such regulated entity4 7,b7 ,joint approval required ,if a financial regulatory agency issues a notice of intervention described in subparagraph 7,a71 the applicable ,,ai test project may not take effect unless such financial regulatory agency1 jointly with the financial regulatory agencies described in paragraph 7#d77;,b77ii71 approves the application4 7#g7 ,agency review 7,a7 ,in general ,except as provided in subparagraph 7,d71 not later than #abj days after the date on which a complete application is received by a financial regulatory agency under this subsection1 the financial regulatory agency shall-- 7i7 review the application and assess1 to the extent reasonably practicable1 the applicant's ability to satisfy the standards described in subparagraphs 7,b7 and 7,c7 of paragraph 7#b72 and 7ii7 submit to the applicant in writing a determination of the agency4 7,b7 ,approval 7i7 ,in general ,if the applicant shows that it is more likely than not that the application meets the requirements for establishing an alternative compliance strategy and satisfies the standards described in subparagraphs 7,b7 and 7,c7 of paragraph 7#b71 the financial regulatory agency shall approve the application and notify the applicant in writing of-- 7,i7 the regulation that is the subject of the alternative compliance strategy2 7,,ii7 the terms of the alternative compliance strategy for the ,,ai test project2 7,,iii7 the date on which the ,,ai test project will terminate2 7,,iv7 any limitations on the size1 scope1 or growth of the ,,ai test project2 and 7,v7 any additional limitations or conditions on the ,,ai test project1 as determined by the financial regulatory agency4 7ii7 ,effect of approval ,with respect to an ,,ai test project1 beginning on the date on which an application submitted under paragraph 7#a7 is approved and ending on the date described in clause 7i77,,iii7-- 7,i7 the appropriate financial regulatory agency may enforce a regulation described in clause 7i77,i7 only in the manner set out in the alternative compliance strategy described in clause 7i77,,ii71 subject to limitations or conditions described in subclauses 7,,iv7 and 7,v7 of clause 7i72 and 7,,ii7 except as provided in clause 7iii71 a financial regulatory agency that is not the appropriate financial regulatory agency may not enforce a regulation described in clause 7i77,i74 7iii7 ,enforcement by another financial regulatory agency ,with respect to an ,,ai test project1 a financial regulatory agency other than the appropriate financial regulatory agency may enforce a regulation described in clause 7i77,i7 if-- 7,i7 such other financial regulatory agency issued or enforces such regulation2 7,,ii7 the approval of such other financial regulatory agency was required for the ,,ai test project under paragraph 7#d77;,b77ii77,,ii7 or 7#f77;,b72 and 7,,iii7 the alternative compliance strategy described in subclause clause 7i77,,ii7 provides for enforcement by such other financial regulatory agency4 7,c7 ,denial1 resubmittal1 and relief 7i7 ,in general ,if a financial regulatory agency denies an application1 the financial regulatory agency-- 7,i7 shall submit to the applicant a written notice explaining the reason for denial2 and 7,,ii7 may not take an enforcement action related to the proposed ,,ai test project against the applicant earlier than the date that is #cj days after the date on which the financial regulatory agency submits such written notice4 7ii7 ,resubmittals ,each time an application submitted under paragraph 7#a7 is denied1 the regulated entity-- 7,i7 may submit an amended application after receiving feedback from the financial regulatory agency making such denial2 and 7,,ii7 may not resubmit more than #b applications that are substantially similar to the denied application4 7iii7 ,injunctive relief ,notwithstanding clause 7i77,,ii71 a financial regulatory agency1 by and through its own attorneys1 may file a civil action in an appropriate ,united ,states district court to enjoin an active ,,ai test project if the financial regulatory agency determines that the ,,ai test project-- 7,i7 presents an immediate danger to consumers or investors2 or 7,,ii7 presents a risk-- 7aa7 to financial markets2 7bb7 in the case of an ,,ai test project engaged in by an insured depository institution or an insured credit union1 of loss to a ,federal deposit or share insurance fund2 7cc7 of a violation of anti-money laundering and countering the financing of terrorism obligations under subchapter ,,ii of chapter #ec of title #ca1 ,united ,states ,code2 or 7dd7 to the national security of the ,united ,states4 7iv7 ,rule of construction on certain administrative orders ,nothing in clause 7iv7 shall be construed to limit a financial regulatory agency's authority to issue an administrative order to cease the activity of an active ,,ai test project where the agency determines such activity is causing unmitigable or irreparable harm to consumers1 investors1 or financial stability4 7,d7 ,extension2 failure to make a determination ,if a financial regulatory agency determines additional time is needed to make a determination on a complete application received under this subsection1 the financial regulatory agency may extend the #abj-;day deadline by one additional #abj-;day period4 ,if the financial regulatory agency does not approve or deny the application by the end of the initial #abj-;day period 7or the #bdj-;day period1 in the case of extension71 the financial regulatory agency shall be deemed to have approved the application4 7,e7 ,additional information ,during the applicable #abj-;day determination period 7or the #bdj-;day period1 in the case of extension71 a financial regulatory agency may request additional information from the regulated entity4 7,f7 ,rule of construction on fraud and market manipulation authority ,nothing in subparagraph 7,b7 or 7,c7 may be construed to limit the authority of a financial regulatory agency to take an enforcement action against a regulated entity with respect to fraud or market manipulation or for engaging in an unsafe or unsound practice4 7#h7 ,data security ,all data supplied by sponsors of ,,ai test projects to a financial regulatory agency submitted under this section shall be stored and maintained in a secure manner by the financial regulatory agency1 consistent with applicable data security standards4 7#i7 ,regulations ,not later than #ahj days after the date of enactment of this ,act1 each financial regulatory agency shall promulgate regulations implementing this ,act that-- 7,a7 shall be published in the ,federal ,register and provide a #fj-;day period for public notice and comment2 and 7,b7 include-- 7i7 procedures for submitting applications for ,,ai test projects and for modifying the ,,ai test projects that are approved by the agency2 7ii7 consequences for failure to comply with the terms of an alternative compliance strategy2 7iii7 a requirement that an ,,ai test project will include a specified termination date2 7iv7 procedures to extend the termination date described in clause 7iii7 for a specified time period2 7v7 requirements for regulated entities to report the status and progress of ,,ai test projects at a frequency reasonably necessary for carrying out this ,act and the rules promulgated thereunder2 7vi7 requirements for regulated entities to make disclosures reasonably appropriate to inform consumers or investors regarding any direct interaction with an ,,ai test project1 which shall be tailored to the scale1 scope1 and risks thereof and describe the nature of the ,,ai test project and its applicable alternative compliance strategy2 7vii7 procedures for maintaining1 as appropriate and consistent with applicable law1 the confidentiality1 security1 and privacy of information2 7viii7 consideration of the type and capabilities of proposed ,,ai test projects' relevant ,,ai technologies1 systems1 and applications in the development of applicable guidance and requirements2 7ix7 procedures for assigning appropriate personnel to serve as liaisons and points of contact for regulated entities with approved ,,ai test projects2 and 7x7 procedures for coordinating decisions relating to applications submitted jointly by multiple regulated entities or applications submitted to more than one financial regulatory agency4 7b7 ,interagency coordination and consultation ,the financial regulatory agencies shall consult1 share information1 and coordinate1 and may enter into a joint memorandum of understanding1 in order to-- 7#a7 facilitate any joint approvals of applications2 7#b7 understand and establish best practices with respect to-- 7,a7 ,,ai innovation ,labs2 7,b7 promulgating and updating guidance and rules related to financial products1 services1 and activities that make substantial use of artificial intelligence based on the lessons learned from ,,ai test projects2 and 7,c7 ,,ai test project applications1 approvals1 alternative compliance methods1 conditions1 terms1 reporting1 disclosures1 oversight1 and guidance2 and 7#c7 avoid unnecessary1 duplicative1 or conflicting processes or efforts with respect to ,,ai test project applications1 approvals1 reporting1 and disclosures4 #e4 ,annual report 7a7 ,in general ,not later than #b years after the date of enactment of this ,act1 and each year for #g years thereafter1 each financial regulatory agency shall submit to the ,committee on ,banking1 ,housing1 and ,urban ,affairs of the ,senate and the ,committee on ,financial ,services of the ,house of ,representatives an annual report on the outcomes of ,,ai test projects4 ,a report under this subsection shall include aggregated findings1 trends1 and lessons learned from the ,,ai test projects4 7b7 ,confidentiality ,a report under this section-- 7#a7 may not include the names of participating entities or any proprietary or confidential business information2 and 7#b7 where appropriate1 may contain a classified annex4 ,june #bd1 #bjbf,reported with an amendment1 committed to the ,committee of the ,whole ,house on the ,state of the ,union1 and ordered to be printed