[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 3554 Introduced in Senate (IS)]
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118th CONGRESS
1st Session
S. 3554
To amend the Financial Stability Act of 2010 to provide the Financial
Stability Oversight Council with duties regarding artificial
intelligence in the financial sector, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
December 18, 2023
Mr. Warner (for himself and Mr. Kennedy) introduced the following bill;
which was read twice and referred to the Committee on Banking, Housing,
and Urban Affairs
_______________________________________________________________________
A BILL
To amend the Financial Stability Act of 2010 to provide the Financial
Stability Oversight Council with duties regarding artificial
intelligence in the financial sector, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Financial Artificial Intelligence
Risk Reduction Act'' or the ``FAIRR Act''.
SEC. 2. DEFINITIONS.
In this Act, the term ``artificial intelligence'' has the meaning
given the term in section 5002 of the National Artificial Intelligence
Initiative Act of 2020 (15 U.S.C. 9401).
SEC. 3. SPECIAL PROVISIONS REGARDING ARTIFICIAL INTELLIGENCE IN THE
FINANCIAL SECTOR.
(a) In General.--Subtitle A of the Financial Stability Act of 2010
(12 U.S.C. 5321 et seq.) is amended by adding at the end the following:
``SEC. 126. SPECIAL PROVISIONS REGARDING ARTIFICIAL INTELLIGENCE IN THE
FINANCIAL SECTOR.
``(a) Coordination, Report, and Recommendations.--The Council shall
coordinate with member agencies with regard to potential risks to the
stability of the financial system posed by artificial intelligence,
including--
``(1) direct the Office of Financial Research, as
appropriate, to conduct research into the uses of artificial
intelligence by financial institutions and entities providing
services to or performing functions on behalf of financial
institutions;
``(2) identify threats to the stability of the financial
system posed by the use of artificial intelligence tools and
technologies, such as--
``(A) the generation and use of false
representations of events or the likeness, speech, or
actions of persons by malign actors to manipulate
financial markets, institutions, or instruments, or to
cause disruption in financial markets and;
``(B) any other acts or practices associated with
the use or assistance of artificial intelligence tools
or technologies that threaten the stability of the
financial system;
``(3) not later than 180 days after the date of enactment
of this section, in consultation with the member agencies,
financial institutions, securities market participants, and
entities providing services to or performing functions on
behalf of financial institutions or securities markets
participants, submit to the Committee on Banking, Housing, and
Urban Affairs of the Senate and the Committee on Financial
Services of the House of Representatives a report that--
``(A) identifies the threats described in paragraph
(2);
``(B) identifies specific gaps in the existing
regulations, guidance, 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 (2); and
``(C) makes specific recommendations for addressing
the gaps identified in subparagraph (B), including, as
appropriate, recommendations regarding implementation
of the recommendations in the Cybersecurity Information
Sheet published by the National Security Agency,
Federal Bureau of Investigation, and Cybersecurity and
Infrastructure Security Agency on September 12, 2023;
and
``(4) identify, as appropriate, opportunities for the use
of artificial intelligence technologies in financial regulation
and supervision, specifying that any use of artificial
intelligence by the agencies in regulation and supervision
should be transparent and disclosed to their regulated entities
as appropriate.
``(b) Congressional Review.--Not later than 30 days after the date
on which the relevant congressional committees receive the report
required under subsection (a), the committees shall review the report
and submit comments and recommendations thereon.
``(c) Implementation of Council Recommendations.--
``(1) In general.--Upon review of comments and
recommendations under subsection (b), the Council shall
commence action under the procedures prescribed in section 120
with regard to implementation of the recommendations by each of
the member agencies.
``(d) Congressional Review Act.--The provisions of chapter 8 of
title 5, United States Code, shall apply as appropriate to rules issued
by the member agencies under this section.
``(e) Scenario-Based Exercises.--The Federal and Banking
Information Infrastructure Committee sponsored by the President's
Working Group on Financial Markets shall, in consultation with private-
sector entities and other relevant governmental entities--
``(1) 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 technologies; and
``(2) make recommendations for ongoing improvements in
detection, prevention, and mitigation of such disruptions.''.
(b) Technical and Conforming Amendment.--The table of sections for
the Dodd-Frank Wall Street Reform and Consumer Protection Act (12
U.S.C. 5301) is amended by inserting after the item relating to section
125 the following:
``126. Special provisions regarding artificial intelligence in the
financial sector.''.
SEC. 4. ENHANCED AUTHORITY TO OVERSEE THIRD-PARTY PROVIDERS OF
ARTIFICIAL INTELLIGENCE AND OTHER SERVICES TO FINANCIAL
INSTITUTIONS.
Section 206A of the Federal Credit Union Act (12 U.S.C. 1786a) is
amended--
(1) in subsection (a)(1), by striking ``that'' and
inserting ``an'';
(2) in subsection (c)(2), in the matter preceding
subparagraph (A), by inserting ``, in a manner and method
prescribed by the Board,'' after ``Board'' ; and
(3) by striking subsection (f).
SEC. 5. REGULATION OF SERVICE PROVIDERS BY THE FEDERAL HOUSING FINANCE
AGENCY.
Subpart A of part 2 of subtitle A of the Federal Housing
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4541
et seq.) is amended by adding at the end the following:
``SEC. 1329. REGULATION AND EXAMINATION OF CERTAIN SERVICE PROVIDERS.
``Whenever a regulated entity or the Office of Finance causes to be
performed for itself, by contract or otherwise, any activity that is
permissible for the regulated entity or the Office of Finance, whether
on or off its premises--
``(1) 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 premises; and
``(2) the regulated entity or Office of Finance shall
notify the Director of the existence of the service
relationship not later than 30 days after the earlier of--
``(A) making of such service contract; or
``(B) the performance of the activity by the
service provider.''.
SEC. 6. TREBLE PENALTIES.
Section 21(d)(3) of the Securities Exchange Act of 1934 (15 U.S.C.
78u(d)(3)) is amended by adding at the end the following:
``(E) Amount of penalty for violation involving machine-
manipulated media.--The amount of a civil penalty imposed under
subparagraph (A)(i) for a violation involving the use of
machine-manipulated media, as defined in section 5724 of the
Damon Paul Nelson and Matthew Young Pollard Intelligence
Authorization Act for Fiscal Years 2018, 2019, and 2020 (50
U.S.C. 3024 note), shall not exceed 3 times the penalty
otherwise determined under clause (i), (ii), or (iii) of
subparagraph (B).''.
SEC. 7. LIABILITY.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by adding at the end the following:
``SEC. 42. LIABILITY.
``(a) Liability.--Any person who, directly or indirectly, deploys
or causes to be deployed, an artificial intelligence model shall be
deemed to satisfy the scienter, other state of mind, or negligence
requirements of the Federal securities laws with regard to any and all
acts, practices or conduct engaged in by such model, and any outcome
resulting from the use of such model, and shall be liable to the same
extent as if such person had committed such acts, practices or conduct
directly, unless such person took reasonable steps to prevent such
acts, practices, conduct and outcome, which may include but are not
limited to establishing, maintaining and enforcing written policies and
procedures reasonably designed to prevent violations of the Federal
securities laws.
``(b) 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 waived.''.
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