FAIRR Act

The Financial Artificial Intelligence Risk Reduction Act, or FAIRR Act, aims to proactively address the growing influence and potential risks of artificial intelligence (AI) within the financial sector. It significantly amends the Financial Stability Act of 2010 by tasking the Financial Stability Oversight Council (FSOC) with new responsibilities related to AI. The FSOC is directed to coordinate with member agencies to assess potential threats to financial system stability posed by AI technologies. Specifically, the FSOC must direct the Office of Financial Research to conduct studies on AI use by financial institutions and identify threats such as market manipulation by malign actors or risks from agent deployment and concentration of AI infrastructure providers. Within 180 days, the Council is required to submit a comprehensive report to Congress. This report must detail identified threats, discuss AI's role in cybersecurity, pinpoint gaps in existing regulations, and offer specific recommendations for addressing these shortcomings. The bill also encourages the FSOC to identify opportunities for AI in financial regulation, emphasizing transparency. The legislation also mandates the Securities and Exchange Commission (SEC) to establish new rules for "covered persons," such as issuers, brokers, and dealers, regarding their use of AI, focusing on governance and compliance. Furthermore, it enhances the oversight authority of the National Credit Union Administration (NCUA) and the Federal Housing Finance Agency (FHFA) over third-party service providers, ensuring contracted activities are subject to regulatory scrutiny. Finally, the bill directs scenario-based exercises to test defenses against AI-related financial market disruptions.