Lawmakers Want to Oversee AI Adoption by Financial Services, Housing Industries
July 23, 2024
A report from a bipartisan working group in the House Financial Services Committee (HFSC) examined the use of artificial intelligence (AI) in financial services and housing industries. The group’s early findings were outlined in a July 18 report titled “AI Innovation Explored: Insights into AI Applications in Financial Services and Housing.”
- AI Working Group. Chair Patrick McHenry (R-NC) and Ranking Member Maxine Waters (D-CA) in January announced the bipartisan Working Group on Artificial Intelligence, equally divided between 12 Republicans and Democrats.
- The AI Working Group’s overarching goal was to consider the sector-specific risks of AI and examine the sufficiency of the existing statutory and regulatory framework.
- Lawmakers conducted a series of roundtable meetings focused on how financial services use AI, related technological developments, and regulatory implications associated with AI.
Key takeaways from the AI Working Group’s roundtable meetings include:
Regulators said regulated entities are expected to follow all laws, including anti-discrimination and other consumer protection laws, in a “tech-neutral manner.”
- The Federal Housing Finance Agency told lawmakers that the government-sponsored entities have explored the use of AI and how it can help make homeownership more attainable. However, the regulator emphasized the importance and need for a comprehensive and standardized set of data before employing AI.
- Regulators “generally noted that the use of AI did not absolve entities from complying with anti-discrimination laws and other consumer protection laws.” While some agencies said they did not need federal legislation from Congress to manage unique challenges related to AI, others indicated that legislation could be helpful.
Capital markets participants are taking a “measured approach” to implementing AI because of the regulated nature of their industry and current requirements.
What they're saying:
- Participants, including a securities exchange and a broker-dealer firm, said AI is useful for market research, synthesizing large quantities of data, and verifying know-your-customer information.
- One industry participant warned widespread adoption of certain AI models may encourage “herd-like behavior” in capital markets.
- Housing and insurance businesses, including a lender and credit underwriter, said they are deploying AI to underwrite mortgages and insurance policies, screen tenants, and perform data analytics that guide responses to consumers.
Yes, but: While AI offers benefits and conveniences, it has presented challenges related to fair housing and consumer protection.
- One participant told lawmakers that AI tools allow large property manager employees to manage and maintain up to 20 apartment buildings at a time.
- AI is helping developers to identify the most productive plots of land to build on based on local land-use requirements.
Financial Institutions and Nonbank Firms.
- Discussions also focused on specific use cases by financial institutions of all sizes, specifically in loan underwriting, customer service, fraud detection, and debt collection.
- A second panel focused on the AI lifecycle at a financial institution or nonbank, from acquisition of the technology to development and integration. Members and panelists discussed how financial institutions use AI to comply with anti-discrimination laws, as well as the need for cybersecurity and privacy safeguards.
What’s next: Given the critical role of the financial and housing markets, committee staff recommended the Committee should serve in a leading role in overseeing AI’s adoption. To that end, the report recommends the committee:
- Ensure regulators apply and enforce existing laws, including anti-discrimination laws, and assess regulatory gaps as market participants adopt AI
- Ensure that financial regulators have the appropriate focus and tools to oversee new products and services
- Add a chief AI officer at each regulator to oversee the agency’s approach to AI, including risk mitigation processes
- Continue to focus on how to reform data privacy laws given the importance of data, especially consumer data, to AI
Please contact Aleksandrs Rozens (arozens@crefc.org) for additional questions.