A bipartisan group in the US Congress has introduced legislation that aims to foster artificial intelligence (AI) innovation within the financial services industry by creating regulatory sandboxes. This new bill marks a significant step toward a unified, nationwide framework for regulating AI in the financial services industry.

Under the Unleashing AI Innovation in Financial Services Act, financial firms can apply to federal financial regulators to test AI-driven projects without the fear of undue regulation or retroactive enforcement actions. This application process includes the option for firms to request modifications or waivers of specific regulations and propose alternative methods for compliance. To qualify for participation under the draft bill, companies must demonstrate that their AI projects do not pose a systemic risk to the US financial system and that they comply with anti-money laundering laws.

Regulatory sandboxes are designed to allow financial firms to conduct limited experimentation with novel products that may not align perfectly with existing laws. Historically, these sandboxes have been more prevalent at the state level, despite previous congressional efforts to expand them nationally. A list of state-specific regulatory sandboxes, provided by the American Bankers Association, is available here.

The covered agencies under this bill include major financial regulatory bodies such as the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Securities and Exchange Commission, Consumer Financial Protection Bureau, National Credit Union Administration, and Federal Housing Finance Agency. Surprisingly, the Commodity Futures Trading Association is not a covered agency for purposes of the bill.