II 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Financial Artificial In5 telligence Risk Reduction Act’’ or the ‘‘FAIRR Act’’. 

6 SEC. 2. DEFINITIONS. 

7 In this Act, the term ‘‘artificial intelligence’’ has the 

8 meaning given the term in section 5002 of the National 


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1 Artificial Intelligence Initiative Act of 2020 (15 U.S.C. 

2 9401). 

3 SEC. 3. SPECIAL PROVISIONS REGARDING ARTIFICIAL IN4 TELLIGENCE IN THE FINANCIAL SECTOR. 

5 (a) IN GENERAL.—Subtitle A of the Financial Sta6 bility Act of 2010 (12 U.S.C. 5321 et seq.) is amended 

7 by adding at the end the following: 

8 ‘‘SEC. 126. SPECIAL PROVISIONS REGARDING ARTIFICIAL 

9 INTELLIGENCE IN THE FINANCIAL SECTOR. 

10 ‘‘(a) COORDINATION, REPORT, AND RECOMMENDA11 TIONS.—The Council shall coordinate with member agen12 cies with regard to potential risks to the stability of the 

13 financial system posed by artificial intelligence, includ14 ing— 

15 ‘‘(1) direct the Office of Financial Research, as 

16 appropriate, to conduct research into the uses of ar17 tificial intelligence by financial institutions and enti18 ties providing services to or performing functions on 

19 behalf of financial institutions; 

20 ‘‘(2) identify threats to the stability of the fi21 nancial system posed by the use of artificial intel22 ligence tools and technologies, such as— 

23 ‘‘(A) the generation and use of false rep24 resentations of events or the likeness, speech, or 

25 actions of persons by malign actors to manipuVerDate Sep 11 2014 23:17 Jan 03, 2024 Jkt 049200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S3554.IS S3554

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1 late financial markets, institutions, or instru2 ments, or to cause disruption in financial mar3 kets and; 

4 ‘‘(B) any other acts or practices associated 

5 with the use or assistance of artificial intel6 ligence tools or technologies that threaten the 

7 stability of the financial system; 

8 ‘‘(3) not later than 180 days after the date of 

9 enactment of this section, in consultation with the 

10 member agencies, financial institutions, securities 

11 market participants, and entities providing services 

12 to or performing functions on behalf of financial in13 stitutions or securities markets participants, submit 

14 to the Committee on Banking, Housing, and Urban 

15 Affairs of the Senate and the Committee on Finan16 cial Services of the House of Representatives a re17 port that— 

18 ‘‘(A) identifies the threats described in 

19 paragraph (2); 

20 ‘‘(B) identifies specific gaps in the existing 

21 regulations, guidance, and examination stand22 ards of the member agencies that prevent effec23 tive and comprehensive responses by each of the 

24 member agencies to the threats described in 

25 paragraph (2); and 


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1 ‘‘(C) makes specific recommendations for 

2 addressing the gaps identified in subparagraph 

3 (B), including, as appropriate, recommenda4 tions regarding implementation of the rec5 ommendations in the Cybersecurity Information 

6 Sheet published by the National Security Agen7 cy, Federal Bureau of Investigation, and Cyber8 security and Infrastructure Security Agency on 

9 September 12, 2023; and 

10 ‘‘(4) identify, as appropriate, opportunities for 

11 the use of artificial intelligence technologies in finan12 cial regulation and supervision, specifying that any 

13 use of artificial intelligence by the agencies in regu14 lation and supervision should be transparent and 

15 disclosed to their regulated entities as appropriate. 

16 ‘‘(b) CONGRESSIONAL REVIEW.—Not later than 30 

17 days after the date on which the relevant congressional 

18 committees receive the report required under subsection 

19 (a), the committees shall review the report and submit 

20 comments and recommendations thereon. 

21 ‘‘(c) IMPLEMENTATION OF COUNCIL RECOMMENDA22 TIONS.— 

23 ‘‘(1) IN GENERAL.—Upon review of comments 

24 and recommendations under subsection (b), the 

25 Council shall commence action under the procedures 


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1 prescribed in section 120 with regard to implementa2 tion of the recommendations by each of the member 

3 agencies. 

4 ‘‘(d) CONGRESSIONAL REVIEW ACT.—The provisions 

5 of chapter 8 of title 5, United States Code, shall apply 

6 as appropriate to rules issued by the member agencies 

7 under this section. 

8 ‘‘(e) SCENARIO-BASED EXERCISES.—The Federal 

9 and Banking Information Infrastructure Committee spon10 sored by the President’s Working Group on Financial 

11 Markets shall, in consultation with private-sector entities 

12 and other relevant governmental entities— 

13 ‘‘(1) initiate a series of scenario-based exercises 

14 to test the effectiveness of defenses against financial 

15 market disruptions associated with the use or assist16 ance of artificial intelligence technologies; and 

17 ‘‘(2) make recommendations for ongoing im18 provements in detection, prevention, and mitigation 

19 of such disruptions.’’. 

20 (b) TECHNICAL AND CONFORMING AMENDMENT.— 

21 The table of sections for the Dodd-Frank Wall Street Re22 form and Consumer Protection Act (12 U.S.C. 5301) is 

23 amended by inserting after the item relating to section 

24 125 the following: 

‘‘126. Special provisions regarding artificial intelligence in the financial sector.’’. 


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1 SEC. 4. ENHANCED AUTHORITY TO OVERSEE THIRD-PARTY 

2 PROVIDERS OF ARTIFICIAL INTELLIGENCE 

3 AND OTHER SERVICES TO FINANCIAL INSTI4 TUTIONS. 

5 Section 206A of the Federal Credit Union Act (12 

6 U.S.C. 1786a) is amended— 

7 (1) in subsection (a)(1), by striking ‘‘that’’ and 

8 inserting ‘‘an’’; 

9 (2) in subsection (c)(2), in the matter preceding 

10 subparagraph (A), by inserting ‘‘, in a manner and 

11 method prescribed by the Board,’’ after ‘‘Board’’ ; 

12 and 

13 (3) by striking subsection (f). 

14 SEC. 5. REGULATION OF SERVICE PROVIDERS BY THE FED15 ERAL HOUSING FINANCE AGENCY. 

16 Subpart A of part 2 of subtitle A of the Federal 

17 Housing Enterprises Financial Safety and Soundness Act 

18 of 1992 (12 U.S.C. 4541 et seq.) is amended by adding 

19 at the end the following: 

20 ‘‘SEC. 1329. REGULATION AND EXAMINATION OF CERTAIN 

21 SERVICE PROVIDERS. 

22 ‘‘Whenever a regulated entity or the Office of Fi23 nance causes to be performed for itself, by contract or oth24 erwise, any activity that is permissible for the regulated 

25 entity or the Office of Finance, whether on or off its prem26 ises— 


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1 ‘‘(1) such performance shall be subject to regu2 lation and examination by the Director to the same 

3 extent as if such activity were being performed by 

4 such entity or Office itself on its own premises; and 

5 ‘‘(2) the regulated entity or Office of Finance 

6 shall notify the Director of the existence of the serv7 ice relationship not later than 30 days after the ear8 lier of— 

9 ‘‘(A) making of such service contract; or 

10 ‘‘(B) the performance of the activity by the 

11 service provider.’’. 

12 SEC. 6. TREBLE PENALTIES. 

13 Section 21(d)(3) of the Securities Exchange Act of 

14 1934 (15 U.S.C. 78u(d)(3)) is amended by adding at the 

15 end the following: 

16 ‘‘(E) AMOUNT OF PENALTY FOR VIOLATION IN17 VOLVING MACHINE-MANIPULATED MEDIA.—The 

18 amount of a civil penalty imposed under subpara19 graph (A)(i) for a violation involving the use of ma20 chine-manipulated media, as defined in section 5724 

21 of the Damon Paul Nelson and Matthew Young Pol22 lard Intelligence Authorization Act for Fiscal Years 

23 2018, 2019, and 2020 (50 U.S.C. 3024 note), shall 

24 not exceed 3 times the penalty otherwise determined 

25 under clause (i), (ii), or (iii) of subparagraph (B).’’. 


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1 SEC. 7. LIABILITY. 

2 The Securities Exchange Act of 1934 (15 U.S.C. 78a 

3 et seq.) is amended by adding at the end the following: 

4 ‘‘SEC. 42. LIABILITY. 

5 ‘‘(a) LIABILITY.—Any person who, directly or indi6 rectly, deploys or causes to be deployed, an artificial intel7 ligence model shall be deemed to satisfy the scienter, other 

8 state of mind, or negligence requirements of the Federal 

9 securities laws with regard to any and all acts, practices 

10 or conduct engaged in by such model, and any outcome 

11 resulting from the use of such model, and shall be liable 

12 to the same extent as if such person had committed such 

13 acts, practices or conduct directly, unless such person took 

14 reasonable steps to prevent such acts, practices, conduct 

15 and outcome, which may include but are not limited to 

16 establishing, maintaining and enforcing written policies 

17 and procedures reasonably designed to prevent violations 

18 of the Federal securities laws. 

19 ‘‘(b) WAIVERS.—Civil liability of a developer of an 

20 artificial intelligence model for design defects or breaches 

21 of implied warranties with respect to such a model out 

22 of which arise a violation of the Federal securities laws 

23 may not be waived.’’. 

Æ 


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