[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 4951 Introduced in Senate (IS)]

<DOC>






118th CONGRESS
  2d Session
                                S. 4951

  To provide for regulatory sandboxes that permit certain persons to 
    experiment with artificial intelligence without expectation of 
                          enforcement actions.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             August 1, 2024

  Mr. Rounds (for himself and Mr. Heinrich) introduced the following 
 bill; which was read twice and referred to the Committee on Banking, 
                       Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To provide for regulatory sandboxes that permit certain persons to 
    experiment with artificial intelligence without expectation of 
                          enforcement actions.

    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 ``Unleashing AI Innovation in 
Financial Services Act''.

SEC. 2. USE OF ARTIFICIAL INTELLIGENCE BY REGULATED FINANCIAL ENTITIES.

    (a) Definitions.--In this section:
            (1) AI test project.--The term ``AI test project'' means a 
        financial product or service that falls under the jurisdiction 
        of a financial regulatory agency--
                    (A) substantially uses artificial intelligence; and
                    (B) is or may be subject to a Federal regulation or 
                Federal statute.
            (2) Appropriate financial regulatory agency.--The term 
        ``appropriate financial regulatory agency'' means--
                    (A) the appropriate Federal banking agency, as 
                defined in section 3 of the Federal Deposit Insurance 
                Act (12 U.S.C. 1813), with respect to regulated 
                entities described in subsection (q) of that section;
                    (B) the Securities and Exchange Commission, with 
                respect to--
                            (i) any broker or dealer that is registered 
                        with the Commission under the Securities 
                        Exchange Act of 1934 (15 U.S.C. 78a et seq.), 
                        with respect to the activities of the broker or 
                        dealer that require the broker or dealer to be 
                        registered under that Act;
                            (ii) any investment company that is 
                        registered with the Commission under the 
                        Investment Company Act of 1940 (15 U.S.C. 80a-1 
                        et seq.), with respect to the activities of the 
                        investment company that require the investment 
                        company to be registered under that Act;
                            (iii) any investment adviser that is 
                        registered with the Commission under the 
                        Investment Advisers Act of 1940 (15 U.S.C. 80b-
                        1 et seq.), with respect to the investment 
                        advisory activities of such company and 
                        activities that are incidental to such advisory 
                        activities;
                            (iv) any clearing agency registered with 
                        the Commission under the Securities Exchange 
                        Act of 1934 (15 U.S.C. 78a et seq.), with 
                        respect to the activities of the clearing 
                        agency that require the agency to be registered 
                        under such Act;
                            (v) any nationally recognized statistical 
                        rating organization registered with the 
                        Commission under the Securities Exchange Act of 
                        1934 (15 U.S.C. 78a et seq.);
                            (vi) any transfer agent registered with the 
                        Commission under the Securities Exchange Act of 
                        1934 (15 U.S.C. 78a et seq.);
                            (vii) any exchange registered as a national 
                        securities exchange with the Commission under 
                        the Securities Exchange Act of 1934 (15 U.S.C. 
                        78a et seq.);
                            (viii) any national securities association 
                        registered with the Commission under the 
                        Securities Exchange Act of 1934 (15 U.S.C. 78a 
                        et seq.);
                            (ix) any securities information processor 
                        registered with the Commission under the 
                        Securities Exchange Act of 1934 (15 U.S.C. 78a 
                        et seq.);
                            (x) the Municipal Securities Rulemaking 
                        Board established under the Securities Exchange 
                        Act of 1934 (15 U.S.C. 78a et seq.);
                            (xi) the Public Company Accounting 
                        Oversight Board established under the Sarbanes-
                        Oxley Act of 2002 (15 U.S.C. 7211 et seq.);
                            (xii) the Securities Investor Protection 
                        Corporation established under the Securities 
                        Investor Protection Act of 1970 (15 U.S.C. 
                        78aaa et seq.); and
                            (xiii) any security-based swap execution 
                        facility, security-based swap data repository, 
                        security-based swap dealer or major security-
                        based swap participant registered with the 
                        Commission under the Securities Exchange Act of 
                        1934 (15 U.S.C. 78a et seq.), with respect to 
                        the security-based swap activities of the 
                        person that require such person to be 
                        registered under such Act;
                    (C) the Bureau of Consumer Financial Protection, 
                with respect to a covered person, as defined in section 
                1002 of the Consumer Financial Protection Act of 2010 
                (12 U.S.C. 5481), that is not described in subparagraph 
                (A), (B), (C), (E), or (F) of this paragraph;
                    (D) the National Credit Union Administration, with 
                respect to an insured credit union; and
                    (E) the Federal Housing Finance Agency, with 
                respect to Federal Home Loan Banks or the Federal Home 
                Loan Bank System, and with respect to the Federal 
                National Mortgage Association or the Federal Home Loan 
                Mortgage Corporation.
            (3) Artificial intelligence.--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).
            (4) Federal securities laws.--The term ``Federal securities 
        laws'' means--
                    (A) the Securities Act of 1933 (15 U.S.C. 77a et 
                seq.);
                    (B) the Securities Exchange Act of 1934 (15 U.S.C. 
                78a et seq.);
                    (C) the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 
                et seq.);
                    (D) the Trust Indenture Act of 1939 (15 U.S.C. 
                77aaa et seq.);
                    (E) the Investment Company Act of 1940 (15 U.S.C. 
                80a-1 et seq.);
                    (F) the Investment Advisers Act of 1940 (15 U.S.C. 
                80b-1 et seq.); and
                    (G) the Jumpstart Our Business Startup Act (Public 
                Law 112-106; 126 Stat. 306).
            (5) Financial product or service.--The term ``financial 
        product or service''--
                    (A) has the meaning given the term in section 1002 
                of the Consumer Financial Protection Act of 2010 (12 
                U.S.C. 5481);
                    (B) includes--
                            (i) activities that are financial in 
                        nature, as defined in section 4(k)(4) of the 
                        Bank Holding Company Act of 1956 (12 U.S.C. 
                        1843(k)(4));
                            (ii) any financial product or service 
                        provided by a person regulated by the 
                        Commission, as defined in 1002 of the Consumer 
                        Financial Protection Act of 2010 (12 U.S.C. 
                        5481); and
                            (iii) includes the offer or sale of any 
                        security subject to the Federal securities 
                        laws; and
                    (C) does not include the business of insurance.
            (6) Financial regulatory agency.--The term ``financial 
        regulatory agency'' means--
                    (A) the Board of Governors of the Federal Reserve 
                System;
                    (B) the Federal Deposit Insurance Corporation;
                    (C) the Office of the Comptroller of the Currency;
                    (D) the Securities and Exchange Commission;
                    (E) the Bureau of Consumer Financial Protection;
                    (F) the National Credit Union Administration; and
                    (G) the Federal Housing Finance Agency.
            (7) Regulated entity.--The term ``regulated entity'' means 
        an entity regulated by any financial regulatory agency.
    (b) Regulatory Sandboxes.--
            (1) Establishment.--Each financial regulatory agency shall 
        establish a regulatory sandbox that allows regulated entities 
        to experiment with AI test projects without unnecessary or 
        unduly burdensome regulation or expectation of retroactive 
        enforcement actions.
            (2) Applications.--
                    (A) Submission.--
                            (i) In general.--A regulated entity may 
                        submit to the appropriate financial regulatory 
                        agency an application, on a form determined by 
                        the appropriate financial regulatory agency, to 
                        engage in an AI test project.
                            (ii) Contents.--An application submitted 
                        under clause (i) shall include--
                                    (I) a description of the AI test 
                                project proposed to be carried out by 
                                the regulated entity;
                                    (II) an alternative compliance 
                                strategy that--
                                            (aa) identifies a 
                                        regulation issued by the 
                                        appropriate financial 
                                        regulatory agency or a Federal 
                                        statute enforced by the 
                                        appropriate financial 
                                        regulatory agency that the 
                                        regulated entity requests to be 
                                        waived or modified; and
                                            (bb) proposes an 
                                        alternative method for the 
                                        regulated entity to comply with 
                                        the regulation or statute, 
                                        including an explanation as to 
                                        why the alternative method is 
                                        essential to the operation of 
                                        the entity;
                                    (III) a demonstration that, under 
                                the strategy described in subclause 
                                (I), the AI test project--
                                            (aa) would serve the public 
                                        interest, improve consumer 
                                        access to a financial product 
                                        or service, or promote consumer 
                                        protection;
                                            (bb) would enhance 
                                        efficiency or operations, 
                                        foster innovation or 
                                        competitiveness, improve risk 
                                        management and security, or 
                                        enhance regulatory compliance;
                                            (cc) would not present a 
                                        systemic risk to the financial 
                                        system of the United States;
                                            (dd) is consistent with the 
                                        purposes of the anti-money 
                                        laundering and countering the 
                                        financing of terrorism 
                                        obligations under subchapter II 
                                        of chapter 53 of title 31, 
                                        United States Code; and
                                            (ee) would not present a 
                                        national security risk to the 
                                        United States;
                                    (IV) a proposed date on which the 
                                AI test project would terminate and 
                                explain why such termination date would 
                                be appropriate;
                                    (V) proposed limitations on the 
                                size, scope, and growth of the AI test 
                                project; and
                                    (VI) an estimate of the economic 
                                impact of the AI test project if 
                                approved.
                            (iii) Joint applications.--Two or more 
                        regulated entities may submit a joint 
                        application to the same financial regulatory 
                        agency under clause (i).
                            (iv) Regulations and statutes of other 
                        agencies.--
                                    (I) In general.--A regulated entity 
                                may submit an application under this 
                                subparagraph that includes an 
                                alternative compliance strategy for a 
                                regulation issued by or a Federal 
                                statute enforced by a financial 
                                regulatory agency that is not the 
                                appropriate financial regulatory agency 
                                for the regulated entity.
                                    (II) Requirements.--An application 
                                described in subclause (I) shall be 
                                subject to the same requirements as an 
                                application described in clause (ii), 
                                except that--
                                            (aa) the regulated entity 
                                        shall submit the application to 
                                        the appropriate financial 
                                        regulatory agency and the 
                                        financial regulatory agency 
                                        that issued the regulation or 
                                        enforces the statute or 
                                        regulation that is the subject 
                                        of the alternative compliance 
                                        strategy; and
                                            (bb) the AI test project 
                                        may not take effect unless the 
                                        appropriate financial 
                                        regulatory agency and any other 
                                        financial regulatory agency 
                                        that issued the regulation or 
                                        enforces the statute that is 
                                        the subject of the alternative 
                                        compliance strategy jointly 
                                        approve the application using 
                                        the process described in 
                                        subparagraph (B).
                            (v) Notice.--A regulated entity that is 
                        regulated or supervised by more than 1 
                        financial regulatory agency shall provide 
                        notice of any application submitted to the 
                        appropriate financial regulatory agency under 
                        this section to each financial regulatory 
                        agency by which it is regulated or supervised 
                        not later than 5 business days after the entity 
                        submits the application to the appropriate 
                        financial regulatory agency.
                    (B) Agency review.--
                            (i) In general.--Except as provided in 
                        clause (v), not later than 90 days after the 
                        date on which an application is submitted to 
                        the appropriate financial regulatory agency 
                        under subparagraph (A), the appropriate 
                        financial regulatory agency shall--
                                    (I) review the application; and
                                    (II) submit to the applicant in 
                                writing a determination of the agency.
                            (ii) Approval.--
                                    (I) 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 
                                meets the requirements described in 
                                subparagraph (A)(ii)(II), the agency 
                                shall approve the application and 
                                notify the applicant in writing of--
                                            (aa) the regulation or 
                                        Federal statute that is the 
                                        subject of the alternative 
                                        compliance strategy;
                                            (bb) the terms of the 
                                        alternative compliance strategy 
                                        for the AI test project;
                                            (cc) the date on which the 
                                        AI test project will terminate;
                                            (dd) any limitations on the 
                                        size, scope, or growth of the 
                                        AI test project; and
                                            (ee) any additional 
                                        limitations or conditions on 
                                        the AI test project, as 
                                        determined by the appropriate 
                                        financial regulatory agency.
                                    (II) Effect of approval.--Except as 
                                provided in subclause (III), beginning 
                                on the date on which an application 
                                submitted under subparagraph (A) is 
                                approved and ending on the date 
                                described in subclause (I)(cc)--
                                            (aa) the appropriate 
                                        financial regulatory agency may 
                                        enforce a regulation or Federal 
                                        statute described in subclause 
                                        (I)(aa) only in the manner set 
                                        out in the alternative 
                                        compliance strategy described 
                                        in subclause (I)(bb); and
                                            (bb) a financial regulatory 
                                        agency that is not the 
                                        appropriate financial 
                                        regulatory agency may not 
                                        enforce a regulation or Federal 
                                        statute described in subclause 
                                        (I)(aa) with respect to the 
                                        conduct of the AI test project 
                                        by the regulated entity.
                                    (III) Enforcement by another 
                                financial regulatory agency.--A 
                                financial regulatory agency other than 
                                the appropriate financial regulatory 
                                agency that approves an application 
                                under subparagraph (A)(iv) may enforce 
                                a regulation or Federal statute 
                                described in subclause (I)(aa) if the 
                                alternative compliance strategy 
                                described in subclause (I)(bb) provides 
                                for enforcement by such financial 
                                regulatory agency.
                                    (IV) Rule of construction.--Nothing 
                                in this clause may be construed to 
                                limit the authority of a financial 
                                regulatory agency to take an 
                                enforcement action against a regulatory 
                                entity with respect to fraud relating 
                                to an AI test project.
                            (iii) Denial.--
                                    (I) In general.--If an agency 
                                denies an application submitted under 
                                subparagraph (A), the agency--
                                            (aa) shall submit to the 
                                        applicant a written notice 
                                        explaining the reason for 
                                        denial, including evidence that 
                                        the applicant did not satisfy 
                                        the requirements for 
                                        establishing an alternative 
                                        compliance strategy and the 
                                        baseline used by the agency to 
                                        measure the likely economic 
                                        consequences of rejecting the 
                                        application; and
                                            (bb) may not take an 
                                        enforcement action against the 
                                        applicant earlier than the date 
                                        that is 30 days after the date 
                                        on which the agency submits the 
                                        written notice described in 
                                        item (aa).
                                    (II) Resubmittals.--Each time an 
                                application submitted under 
                                subparagraph (A) is denied, the 
                                regulated entity may submit another 
                                application if the application is not 
                                substantially similar to the one 
                                denied.
                                    (III) Injunctive relief.--If a 
                                financial regulatory agency determines 
                                an AI test project presents an 
                                immediate danger to consumers or 
                                presents a risk to financial markets, 
                                the agency may file a civil action in 
                                an appropriate court seeking to enjoin 
                                such project.
                                    (IV) Rule of construction.--Nothing 
                                in this clause may be construed to 
                                limit the authority of a financial 
                                regulatory agency to take an 
                                enforcement action against an applicant 
                                with respect to fraud relating to the 
                                AI test project.
                            (iv) Extension.--If the financial 
                        regulatory agency needs additional time, the 
                        agency may vote to extend the application 
                        deadline by 90 days. After the expiration of 
                        the 90-day period, if the agency has not made a 
                        determination on the application, the 
                        application will automatically be deemed 
                        approved and effective.
                    (C) Data security.--All data supplied by sponsors 
                of AI test projects submitted under this section shall 
                be stored in a secure manner.
                    (D) Regulations.--Not later than 180 days after the 
                date of enactment of this Act, each financial 
                regulatory agency shall promulgate regulations that--
                            (i) shall be published in the Federal 
                        Register and provide a 45-day period for public 
                        notice and comment;
                            (ii) include--
                                    (I) procedures for modifying the AI 
                                test projects that are approved by the 
                                agency;
                                    (II) consequences for failure to 
                                comply with set terms;
                                    (III) termination dates not earlier 
                                than 1 year after the date on which AI 
                                test projects are approved;
                                    (IV) procedures to extend the 
                                termination date described in subclause 
                                (III);
                                    (V) procedures for confidentiality; 
                                and
                                    (VI) procedures for coordinating 
                                decisions relating to applications 
                                submitted jointly by multiple regulated 
                                entities or applications submitted to 
                                more than one financial regulatory 
                                agency.
    (c) Report.--Each financial regulatory agency shall submit to the 
Committee on Banking, Housing, 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 projects.
    (d) Regulations.--After approving not fewer than 1 AI test project, 
an agency may promulgate regulations, after providing a notice and an 
opportunity for public comment, other AI activities or products that 
qualify as AI test projects.
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