,,ii #aaith ,,congress #b;d ,session ,s4 #eceh ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,august #f1 #bjbf,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 ,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 ,definition ,in this section1 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 7b7 ,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 markets2 7,b7 agent deployment and development1 including specific gaps in existing laws 7including regulations7 regarding liability for financial institutions and consumers for unauthorized transactions that could be initiated or completed by agents1 including the fragility1 if any1 created by the concentration of economic activity1 capital formation1 and decision-making concerning artificial intelligence infrastructure providers2 and 7,c7 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 the training1 development1 deployment1 and proliferation of artificial intelligence tools and technologies that are particularly suited for cybersecurity tasks1 including specific aptitudes for identifying vulnerabilities and developing tools and techniques to exploit such vulnerabilities2 7,c7 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,d7 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 7c7 ,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 7d7 ,implementation of council recommendations 7#a7 ,in general ,upon review of comments and recommendations under subsection 7c71 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 7e7 ,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 7f7 ,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 #c4 ,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 ,board2 and 7#c7 by striking subsection 7f74 #d4 ,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 #e4 ,,sec rulemaking on artificial intelligence ,section #c of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;c7 is amended by adding at the end the following3 7i7 ,rulemaking regarding artificial intelligence 7#a7 ,definitions ,in this subsection3 7,a7 ,artificial intelligence ,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 7,b7 ,covered person ,the term covered person-- 7i7 means a person that is required by a provision of this title1 or by a rule or regulation under this title1 to maintain policies1 procedures1 or controls2 and 7ii7 includes-- 7,i7 an issuer that has a class of securities registered pursuant to section #ab2 7,,ii7 an issuer that is required to file reports under section #ae7;d72 7,,iii7 a broker2 7,,iv7 a dealer2 7,v7 a security-based swap dealer2 and 7,,vi7 a self-regulatory organization4 7#b7 ,requirement 7,a7 ,in general ,not later than #ahj days after the enactment of this section the ,commission shall1 by rule or regulation1 impose specific requirements on each covered person to ensure that the policies1 procedures1 or controls described in paragraph 7#a77;,b77i7 maintained by the covered person-- 7i7 address the use of artificial intelligence by the covered person2 and 7ii7 are reasonably designed to ensure compliance with the requirements of this title4 7,b7 ,procedures ,in carrying out subparagraph 7,a71 the ,commission shall-- 7i7 identify and require governance measures with respect to testing1 deployment1 monitoring1 human oversight1 permissions1 escalation procedures1 and use limitations applicable to artificial intelligence systems2 and 7ii7 consider the extent to which-- 7,i7 artificial intelligence systems are developed1 controlled1 modified1 or operated by a covered person as compared to third-party providers2 and 7,,ii7 control is exercised by a covered person over the actions of artificial intelligence systems4 4 #f4 ,rules of construction 7a7 ,definitions 7#a7 ,artificial intelligence ,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 7#b7 ,securities laws ,the term securities laws has the meaning given the term in section #c7;a7 of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;c7a774 7b7 ,rules ,nothing in this ,act1 or any amendment made by this ,act1 may be construed to-- 7#a7 limit the securities laws such that artificial intelligence may be used in a manner that would contravene any of the securities laws2 or 7#b7 provide that the use of artificial intelligence excuses compliance with any obligation under the securities laws4