FAIRR Act
- Sponsor
- Sen. Warner, Mark R. [D-VA]
- Committees
- Banking, Housing, and Urban Affairs Committee (primary)
- Last action
- Aug 6, 2026
Bottom line
The FAIRR Act aims to proactively integrate artificial intelligence risk management into the U.S. financial regulatory framework, enhancing oversight of AI use by financial institutions and their service providers to safeguard financial stability.
What it actually does
This bill expands the duties of the Financial Stability Oversight Council (FSOC) to include monitoring and mitigating risks posed by artificial intelligence (AI) in the financial sector. It mandates FSOC to conduct research, identify threats like market manipulation and concentration risk, and report to Congress with recommendations for regulatory gaps. Additionally, it enhances the authority of the National Credit Union Administration (NCUA) and the Federal Housing Finance Agency (FHFA) to oversee third-party service providers, including those offering AI services, and directs the Securities and Exchange Commission (SEC) to issue rules requiring financial entities to integrate AI governance into their compliance frameworks.
Proponents argue
Proponents argue that the rapid advancement and adoption of artificial intelligence in the financial sector necessitate a proactive regulatory approach to prevent systemic risks. They contend that this bill provides essential tools for regulators to understand, monitor, and mitigate potential threats such as AI-driven market manipulation, cybersecurity vulnerabilities, and the concentration of risk in AI infrastructure providers, ultimately protecting consumers and maintaining financial stability.
Opponents contend
Potential critics might argue that the bill could impose significant compliance burdens on financial institutions, particularly smaller ones, potentially stifling innovation and increasing operational costs. They may also contend that existing regulatory frameworks are sufficient to address emerging risks, or that overly prescriptive rules could hinder the beneficial adoption of AI technologies that enhance efficiency and risk management.
The bill is relatively short and clearly structured, making it accessible for an informed reader to understand its core provisions within a reasonable timeframe.
Section 2(a), adding Section 126 to the Financial Stability Act of 2010
FSOC Duties Regarding Artificial Intelligence in the Financial Sector
This provision mandates the Financial Stability Oversight Council (FSOC) to coordinate with member agencies on potential AI risks to financial stability. It directs FSOC to research AI use by financial institutions, identify threats such as AI-generated market manipulation or concentration risks from AI infrastructure providers, and submit a report to Congress within 180 days. The report must identify threats, cybersecurity aptitudes of AI, gaps in existing regulations, and recommend solutions. FSOC is also tasked with identifying opportunities for AI in financial regulation and supervision, emphasizing transparency.
Supporters argue
Supporters argue that this provision is crucial for proactively addressing the systemic risks posed by AI, ensuring that regulators have a comprehensive understanding of AI's impact on financial markets and the tools to mitigate potential disruptions before they escalate. They believe it fosters a more resilient financial system.
Critics contend
Some critics might argue that mandating extensive research and reporting could lead to over-regulation, potentially stifling innovation in AI adoption within the financial sector. They might also contend that the broad scope of 'artificial intelligence' could create ambiguity and compliance challenges.
Tradeoffs
This provision balances the need for proactive risk management in a rapidly evolving technological landscape with concerns about regulatory burden and potential impacts on innovation. It seeks to identify and address future threats while also exploring beneficial uses of AI in regulation.
Section 2(f), adding Section 126(f) to the Financial Stability Act of 2010
Scenario-Based Exercises for AI Financial Disruptions
This provision requires the Federal and Banking Information Infrastructure Committee, in consultation with private-sector and other government entities, to initiate a series of scenario-based exercises. The purpose of these exercises is to test the effectiveness of defenses against financial market disruptions that are associated with the use or assistance of artificial intelligence technologies. Following these exercises, the Committee is to make recommendations for ongoing improvements in the detection, prevention, and mitigation of such disruptions.
Section 3, amending Section 206A of the Federal Credit Union Act
Enhanced NCUA Authority Over Third-Party Service Providers
This section amends the Federal Credit Union Act to enhance the National Credit Union Administration's (NCUA) authority to regulate and examine third-party service providers that perform activities for credit unions. It clarifies that such performance is subject to NCUA regulation and examination to the same extent as if the credit union performed the activity itself. It also requires credit unions to notify the NCUA of service relationships within 30 days of contract or activity performance, and strikes a subsection related to the Board's authority to prescribe rules for such examinations.
Section 4, adding Section 1329 to the Federal Housing Enterprises Financial Safety and Soundness Act of 1992
FHFA Authority Over Service Providers to Regulated Entities
This section adds a new provision to the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, granting the Federal Housing Finance Agency (FHFA) explicit authority to regulate and examine service providers to regulated entities (Fannie Mae, Freddie Mac, and Federal Home Loan Banks). It clarifies that any activity performed by contract or otherwise for a regulated entity is subject to FHFA regulation and examination to the same extent as if the regulated entity performed it. Regulated entities are also required to notify the FHFA of such service relationships within 30 days.
Section 5, adding Section 3(i) to the Securities Exchange Act of 1934
SEC Rulemaking on Artificial Intelligence for Covered Persons
This section directs the Securities and Exchange Commission (SEC) to issue rules within 180 days requiring 'covered persons' (including issuers, brokers, dealers, security-based swap dealers, and self-regulatory organizations) to ensure their policies, procedures, or controls address the use of artificial intelligence. These rules must be reasonably designed to ensure compliance with the Securities Exchange Act. The SEC is specifically tasked with identifying and requiring governance measures for AI systems, covering aspects like testing, deployment, monitoring, human oversight, permissions, escalation procedures, and use limitations. The SEC must also consider whether AI systems are developed internally or by third-party providers.
This section clarifies that nothing in the Act or its amendments should be construed to limit existing securities laws such that AI could contravene them, or to provide that the use of AI excuses compliance with any obligation under the securities laws.
Section 6(b)
Why it matters:This is standard legislative practice for clarifying the relationship between new legislation and existing law, ensuring legal continuity and preventing unintended interpretations. It's not necessarily evasive, but its importance can be underestimated.
Case for: Supporters argue this is a crucial safeguard, explicitly stating that AI is not a loophole for existing regulations. It ensures accountability and prevents the argument that new technology somehow exempts entities from fundamental legal obligations.
Case against: No specific case against this provision is typically raised, as it reinforces existing legal principles. However, some might argue that it could be interpreted too broadly, potentially limiting the flexibility needed for innovative AI applications that might require new regulatory interpretations rather than strict adherence to old ones.
Estimated impact: Ensures that the introduction of AI-specific regulations does not inadvertently create a carve-out or exemption from broader securities laws, maintaining a consistent legal and regulatory environment for financial institutions.