S. 5358 — FAIRR Act

This section requires the Financial Stability Oversight Council to coordinate with member agencies on risks to financial stability from artificial intelligence, including directing the Office of Financial Research to study AI uses by financial institutions. It mandates identification of threats such as market manipulation through false representations and gaps in liability rules for AI agents, and requires a report to the Senate Banking and House Financial Services Committees within 180 days that includes recommendations addressing a September 12, 2023, Cybersecurity Information Sheet. It also directs scenario-based exercises to test defenses against AI-related market disruptions and applies the Congressional Review Act to resulting rules.

This section restores the National Credit Union Administration Board’s authority to regulate and examine third-party service providers to credit unions, including providers of artificial intelligence services, by eliminating the December 31, 2001, sunset date. It also requires examinations to occur in a manner and method prescribed by the Board.

This section subjects activities performed by service providers for a regulated entity or the Office of Finance to regulation and examination by the Director to the same extent as if performed by the entity itself on its own premises. It requires the entity or Office to notify the Director of the service relationship within 30 days after the earlier of contract execution or performance.

This section directs the Securities and Exchange Commission to issue rules within 180 days requiring covered persons—including issuers with registered securities, brokers, dealers, security-based swap dealers, and self-regulatory organizations—to maintain policies and procedures that address their use of artificial intelligence and ensure compliance with the Securities Exchange Act. The rules must impose governance measures covering testing, deployment, monitoring, human oversight, permissions, escalation, and use limitations, while considering whether systems are developed or operated in-house or by third parties.

This section establishes rules of construction for the Act. It defines artificial intelligence by reference to section 5002 of the National Artificial Intelligence Initiative Act of 2020 and securities laws by reference to section 3(a) of the Securities Exchange Act of 1934. It provides that nothing in the Act may be construed to allow artificial intelligence use that contravenes the securities laws or to excuse compliance with any obligation under those laws.