Digital Asset Market Clarity Act

(a) Definitions

(1) AI test project. The term AI test project means a financial product, service, or activity—

(A) that makes substantial use of artificial intelligence;

(B) that is, or may be, subject to a Federal regulation or Federal statute; and

(C) for which a regulated entity submits an application for the waiver or modification of an applicable regulation subject to an alternative compliance strategy.

(2) Appropriate financial regulatory agency. The term appropriate financial regulatory agency means—

(A) the appropriate Federal banking agency, as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813), with respect to an institution described in subsection (q) of that section;

(B) the Bureau of Consumer Financial Protection, with respect to a covered person, as defined in section 1002 of the Consumer Financial Protection Act of 2010 (12 U.S.C. 5481), that does not have an appropriate financial regulatory agency under subparagraph (A), (C), or (D) of this paragraph;

(C) the National Credit Union Administration, with respect to an insured credit union, as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752); and

(D) the Federal Housing Finance Agency, with respect to—

(i) a Federal Home Loan Bank;

(ii) the Federal Home Loan Bank System;

(iii) the Federal National Mortgage Association; and

(iv) the Federal Home Loan Mortgage Corporation.

(3) Artificial intelligence; AI. The terms artificial intelligence and AI have the meaning given the term artificial intelligence in section 5002 of the National Artificial Intelligence Initiative Act of 2020 (15 U.S.C. 9401).

(4) Financial product or service. The term financial product or service—

(A) has the meaning given the term in section 1002 of the Consumer Financial Protection Act of 2010 (12 U.S.C. 5481);

(B) includes—

(i) activities that are financial in nature, as defined in section 4(k)(4) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)(4)); and

(ii) any financial product or service provided by a person regulated by the Commission, as defined in section 1002 of the Consumer Financial Protection Act of 2010 (12 U.S.C. 5481); and

(C) does not include the business of insurance.

(5) Financial regulatory agency. The term financial regulatory agency means—

(A) the Board of Governors of the Federal Reserve System;

(B) the Federal Deposit Insurance Corporation;

(C) the Office of the Comptroller of the Currency;

(D) the Bureau of Consumer Financial Protection;

(E) the National Credit Union Administration; and

(F) the Federal Housing Finance Agency.

(6) Regulated entity. The term regulated entity means an entity regulated by any financial regulatory agency.

(b) Use of artificial intelligence by regulated financial entities

(1) AI innovation labs

(A) Establishment. Each financial regulatory agency shall establish, or identify an office, division, or department of the agency that shall serve as, an AI Innovation Lab to enable regulated entities to experiment with AI test projects without unnecessary or unduly burdensome regulation or expectation of enforcement actions, pursuant to the approval of an application under subparagraph (B).

(B) Applications

(i) Submission

(I) In general. On and after the date that is 1 year after the date of enactment of this Act, a regulated entity may submit to the appropriate financial regulatory agency an application, on a form determined by the appropriate financial regulatory agency, to engage in an AI test project through the AI Innovation Lab established or identified under subparagraph (A).

(II) Contents. An application submitted under subclause (I) shall include—

(aa) a description of the AI test project proposed to be carried out by the regulated entity;

(bb) an alternative compliance strategy that—

(AA) identifies a regulation issued by the appropriate financial regulatory agency that the regulated entity requests be waived or modified; and

(BB) proposes an alternative method for the regulated entity to comply with the regulation, including an explanation as to why the alternative method is essential to the operation of the entity and how the regulated entity would effectively manage risks associated with the AI test project;

(cc) an explanation of how under the strategy described in item (aa), the AI test project—

(AA) would serve the public interest, improve consumer or investor access to a financial product or service, or promote consumer or investor protection;

(BB) would enhance efficiency or operations, foster innovation or competitiveness, improve risk management and security, or enhance regulatory compliance;

(CC) would not present a systemic risk to the financial system of the United States;

(DD) is consistent with the purposes of the anti-money laundering and countering the financing of terrorism obligations under subchapter II of chapter 53 of title 31, United States Code; and

(EE) would not present a national security risk to the United States;

(dd) a proposed date on which the AI test project would terminate and an explanation as to why such termination date would be appropriate;

(ee) proposed limitations on the size, scope, and growth of the AI test project;

(ff) a detailed business plan; and

(gg) an estimate of the economic impact of the AI test project if approved.

(III) Joint applications. Two or more regulated entities may submit a joint application to the same financial regulatory agency under subclause (I).

(IV) Regulations of other agencies

(aa) In general. A regulated entity may submit an application under this subparagraph that includes an alternative compliance strategy for a regulation issued or enforced by a financial regulatory agency that is not the appropriate financial regulatory agency for the regulated entity.

(bb) Requirements. An application described in item (aa) shall be subject to the same requirements as an application described in subclause (II), except that—

(AA) the regulated entity shall submit the application to the appropriate financial regulatory agency and the financial regulatory agency that issued or enforces the regulation that is the subject of the alternative compliance strategy; and

(BB) the AI test project may not take effect unless the appropriate financial regulatory agency and any other financial regulatory agency that issued or enforces the regulation that is the subject of the alternative compliance strategy jointly approve the application using the process described in clause (ii).

(V) Notice. A regulated entity that is regulated or supervised by more than 1 financial regulatory agency shall provide notice of any application submitted to the appropriate financial regulatory agency under this section to each financial regulatory agency by which it is regulated or supervised not later than 5 business days after the entity submits the application to the appropriate financial regulatory agency.

(ii) Agency review

(I) In general. Except as provided in subclause (IV), not later than 120 days after the date on which an application is submitted to the appropriate financial regulatory agency under clause (i), the appropriate financial regulatory agency shall—

(aa) review the application; and

(bb) submit to the applicant in writing a determination of the agency.

(II) Approval

(aa) In general. If the applicant shows that it is more likely than not that the application meets the requirements for establishing an alternative compliance strategy and satisfies the standards described in items (bb) and (cc) of clause (i)(II), the agency shall approve the application and notify the applicant in writing of—

(AA) the regulation that is the subject of the alternative compliance strategy;

(BB) the terms of the alternative compliance strategy for the AI test project;

(CC) the date on which the AI test project will terminate;

(DD) any limitations on the size, scope, or growth of the AI test project; and

(EE) any additional limitations or conditions on the AI test project, as determined by the appropriate financial regulatory agency.

(bb) Effect of approval. With respect to an AI test project, except as provided in item (cc), beginning on the date on which an application submitted under clause (i) is approved and ending on the date described in item (aa)(CC)—

(AA) the appropriate financial regulatory agency may enforce a regulation described in item (aa)(AA) only in the manner set out in the alternative compliance strategy described in item (aa)(BB); and

(BB) except as provided in subclause (III), a financial regulatory agency that is not the appropriate financial regulatory agency may not enforce a regulation described in item (aa)(AA).

(cc) Enforcement by another financial regulatory agency. With respect to an AI test project, a financial regulatory agency other than the appropriate financial regulatory agency that approves an application under clause (i)(IV) may enforce a regulation described in item (aa)(AA) if the alternative compliance strategy described in item (aa)(BB) provides for enforcement by such financial regulatory agency.

(dd) Rule of construction. Nothing in this clause may be construed to limit the authority of a financial regulatory agency to take an enforcement action against a regulated entity with respect to fraud or market manipulation or for engaging in an unsafe or unsound practice relating to an AI test project.

(III) Denial

(aa) In general. If an agency denies an application submitted under clause (i), the agency—

(AA) shall submit to the applicant a written notice explaining the reason for denial; and

(BB) may not take an enforcement action related to the proposed AI test project against the applicant earlier than the date that is 30 days after the date on which the agency submits the written notice described in subitem (AA).

(bb) Resubmittals. Each time an application submitted under clause (i) is denied, the regulated entity—

(AA) may submit an amended application after receiving feedback from the agency making such denial; and

(BB) may not resubmit more than 2 applications that are substantially similar to the denied application.

(cc) Injunctive relief. Notwithstanding item (aa)(BB), a financial regulatory agency, by and through its own attorneys, may file a civil action in an appropriate United States district court to enjoin an active AI test project if the agency determines that the AI test project presents an immediate danger to consumers or investors or presents a risk—

(AA) to financial markets;

(BB) in the case of an AI test project engaged in by an insured depository institution or an insured credit union, of loss to a Federal deposit or share insurance fund;

(CC) of a violation of anti-money laundering and countering the financing of terrorism obligations under subchapter II of chapter 53 of title 31, United States Code; or

(DD) to the national security of the United States.

(IV) Extension. If the financial regulatory agency needs additional time, the agency may extend the approval deadline by 120 days. After the expiration of the 120-day extension period, if the agency has not made a determination on the application, the application will automatically be deemed approved and effective.

(V) Additional information. Not later than the initial or extended approval deadline, as applicable, a financial regulatory agency may request additional information from the applicant.

(iii) Data security. All data supplied by sponsors of AI test projects to a financial regulatory agency submitted under this section shall be stored and maintained in a secure manner by the financial regulatory agency, consistent with applicable data security standards.

(iv) Regulations. Not later than 180 days after the date of enactment of this Act, each financial regulatory agency shall promulgate regulations that—

(I) shall be published in the Federal Register and provide a 60-day period for public notice and comment;

(II) include—

(aa) procedures for modifying the AI test projects that are approved by the agency;

(bb) consequences for failure to comply with the terms of an alternative compliance strategy;

(cc) a requirement that an AI test project will terminate not earlier than 1 year after the AI test project is approved;

(dd) procedures to extend the termination date described in item (cc);

(ee) procedures for confidentiality; and

(ff) procedures for coordinating decisions relating to applications submitted jointly by multiple regulated entities or applications submitted to more than one financial regulatory agency.

(2) Report. Not later than 2 years after the date of enactment of this Act, and each year for 7 years thereafter, each financial regulatory agency shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives an annual report on the outcomes of AI test projects. A report under this subsection may not include the names of participating entities or any proprietary or confidential business information. A report under this subsection shall include aggregated findings, trends, and lessons learned from the AI test projects.

(3) Rule of construction. Nothing in this section may be construed to limit the authority of a financial regulatory agency to take an enforcement action against a regulated entity with respect to fraud or market manipulation relating to an AI test project.