The FAIRR Act is designed to protect financial markets from risks created by artificial intelligence. It recognizes that AI technology could be misused to manipulate markets or disrupt the financial system—for example, by creating fake videos or audio of real people to spread false information and trick investors.

The bill sets up a coordinated effort where the Financial Stability Oversight Council (a group of financial regulators) must study how AI threatens the financial system and recommend policies to Congress. Once Congress reviews these recommendations, the council must put them into action. Additionally, the Securities and Exchange Commission gets stronger enforcement tools, including the ability to impose triple penalties on people who violate securities laws using AI-generated fake media.

The law also holds people legally responsible if they deploy or use AI models that break securities laws. Finally, it requires financial organizations like credit unions to be transparent about when they outsource work to other companies or service providers, and regulators can examine how these arrangements are managed to ensure they don't create hidden risks in the financial system.

FAIRR Act

Warner, Mark R.

Financial Artificial Intelligence Risk Reduction Act or the FAIRR ActThis bill addresses the impact of artificial intelligence on financial markets.The bill requires the Financial Stability Oversight Council to coordinate with agencies regarding threats to the financial system posed by artificial intelligence, including the use of false representations of the likeness, speech, or actions of persons to manipulate or to cause disruptions to financial markets. The council must report on its findings and make policy recommendations to Congress. After congressional review, the council must implement these recommendations.The Securities and Exchange Commission is allowed to seek treble civil penalties for violations of federal securities exchange law that involve machine-manipulated media.The bill establishes liability for a person who, directly or indirectly, deploys or causes to be deployed an artificial intelligence model involved in a securities law violation.The bill also provides for the regulation and supervision of certain financial organizations and service providers. For example, if a credit union that is subject to examination by the Board of Directors of the National Credit Union Administration delegates the performance of certain activities and services, this delegation must be disclosed and is subject to regulation and examination by the board.