HR 4801119th CongressIn Committee

Unleashing AI Innovation in Financial Services Act

Introduced: Jul 29, 2025

Sponsor: Rep. Hill, J. French [R-AR-2] (R-Arkansas)

Financial ServicesTechnology & Innovation

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Unleashing AI Innovation in Financial Services Act creates a regulatory “sandbox” for artificial intelligence (AI) in the financial sector. It requires each major financial regulator to establish an AI Innovation Lab that allows regulated entities to run AI test projects with a modified or waived enforcement approach under an approved alternative compliance strategy. The goal is to foster AI innovation while managing risk, with sunset terms, data security guarantees, and a structured approval process. The act also requires regular public-facing reporting on outcomes while preserving confidentiality of participating entities.

Key Points

1AI Innovation Labs and experiment scope: Each major financial regulatory agency must establish or designate an AI Innovation Lab to enable regulated entities to test AI-driven financial products or services (AI test projects) without standard enforcement actions, but only under an approved alternative compliance strategy.
2Application and approval process: Regulated entities submit an AI test project proposal including (a) the project description, (b) an alternative compliance strategy that waives or modifies a specific regulation and outlines an alternative method to comply, and (c) analyses showing public interest, consumer/investor benefits, risk management, lack of systemic risk, AML/CFT alignment, national security considerations, a termination date, size/scope limits, a business plan, and estimated economic impact. Joint applications and cross-agency coordination are allowed.
3Review timeline and enforcement: Agencies must decide within 120 days of submission and issue a written determination if approved or denied. If approved, enforcement of the subject regulation is limited to the terms of the alternative compliance strategy, and other agencies may enforce only as allowed by the approved plan. If denied, the entity may resubmit with limits (no more than two substantially similar reapplications) and may seek injunctive relief for urgent concerns. An extension up to 120 days is possible, after which automatic approval may occur if no decision is reached.
4Data security and regulations: Data provided by sponsors must be stored securely. Agencies must issue implementing regulations within 180 days, including processes to modify AI test projects, consequences for noncompliance, a minimum termination date of not less than one year, extension procedures, confidentiality rules, and coordination for multi-entity or multi-agency applications.
5Monitoring and reporting: The act requires annual reports for seven years, detailing outcomes of AI test projects in aggregated form (no names or proprietary information), to Congress. Reports will cover trends, lessons learned, and overall impact.
6Limitations and scope: The act explicitly defines AI and financial products/services with certain regulatory boundaries, including excluding the business of insurance. It applies to regulated entities under specified agencies (e.g., Federal Reserve system regulator, FDIC, OCC, SEC, CFPB, NCUA, FHFA) and their respective regulated parties.

Impact Areas

Primary group/area affected- Regulated financial entities (banks, broker-dealers, investment advisers, credit unions, etc.) that may participate in AI test projects under an approved alternative compliance strategy.Secondary group/area affected- Financial regulatory agencies (the Federal Reserve System regulators, FDIC, OCC, SEC, CFPB, NCUA, FHFA) implementing AI Labs, reviewing applications, and overseeing anti-money laundering, consumer protection, and market integrity aspects.- Consumers and investors who may benefit from AI innovations or be affected by novel compliance approaches and associated risk management.Additional impacts- AI technology developers and financial fintechs seeking to pilot AI-enabled products within a regulatory framework that provides temporary flexibility.- Regulatory certainty and potential shifts in enforcement posture during AI test projects, including the need for robust risk management and data security.- Data privacy and security considerations due to the handling of sponsor data and the requirement for secure data storage.- Cross-agency coordination challenges and opportunities, particularly for projects spanning multiple regulators or jurisdictions.- Public policy considerations around responsible innovation, transparency (through aggregated reporting), and ensuring that sunset provisions prevent long-term regulatory bypass.

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