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CFTC speech highlights new executives, dataset use, and AI Task Force
On November 16, the Chairman of the CFTC, Rostin Behnam, delivered a speech during the 2023 U.S. Treasury Market Conference held in New York where he showcased the CFTC’s plans to better use data and roll out an internal AI task force. One of the CFTC’s initiatives comes with the hiring of two new executive-level roles: a Chief Data Officer and a Chief Data Scientist. These executives will manage how the CFTC uses AI tools, and oversee current processes, including understanding large datasets, cleaning the datasets, identifying and monitoring pockets of stress, and combating spoofing.
The CFTC also unveiled its plans to create an AI Task Force and to “gather[] information about the current and potential uses of AI by our registered entities, registrants, and market participants in areas such as trading, risk management, and cybersecurity.” The Commission plans to obtain feedback for the AI Task Force through a formal Request for Comment process in 2024. The CFTC hopes these comments will help the agency create a rulemaking policy on “safety and security, mitigation of bias, and customer protection.”
President Biden issues Executive Order targeting AI safety
On October 30, President Biden issued an Executive Order (EO) outlining how the federal government can promote artifical intelligence (AI) safety and security to protect US citizens’ rights by: (i) directing AI developers to share critical information and test results with the U.S. government; (ii) developing standards for safe and secure AI systems; (iii) protecting citizens from AI-enabled fraud; (iv) establishing a cybersecurity program; and (v) creating a National Security Memorandum developed by the National Security Council to address AI security.
President Biden also called on Congress to act by passing “bipartisan data privacy legislation” that (i) prioritizes federal support for privacy preservation; (ii) strengthens privacy technologies; (iii) evaluates agencies’ information collection processes for AI risks; and (iv) develops guidelines for federal agencies to evaluate privacy-preserving techniques. The EO additionally encourages agencies to use existing authorities to protect consumers and promote equity. As previously covered by InfoBytes, the FCC recently proposed to use AI to block unwanted robocalls and texts). The order further outlines how the U.S. can continue acting as a leader in AI innovation by catalyzing AI research, promoting a fair and competitive AI ecosystem, and expanding the highly skilled workforce by streamlining visa review.
Treasury official discusses AI and cloud computing at Gov2Gov summit
On October 24, Assistant Secretary for Financial Institutions at the U.S. Department of Treasury Graham Steele delivered remarks at the Gov2Gov Summit to discuss the benefits and risks of artificial intelligence (AI) and machine learning (ML) in the financial services sector.
First, Assistant Secretary Steele discussed the role of cloud computing and cloud service providers (CSPs) in supporting financial institutions’ work, following the Department’s release of a February report which discussed the financial sector’s adoption of cloud services. Assistant Secretary Steele indicated, among other things, that while cloud services can offer more scalable and flexible solutions for financial services institutions to store and manage their data, financial institutions have struggled to understand clearly and implement the cloud services they are purchasing from large, market-dominating CSPs. Assistant Secretary Steele stated that the Department is working toward a model that will allow financial institutions to “unbundle” cloud service packages so that financial institutions can provide more individualized services.
Next, Assistant Secretary Steele discussed the potential advantages and disadvantages of the use of AI among financial institutions, which use AI for tasks including credit underwriting, fraud prevention, and document review. Among the benefits AI offers to financial institutions are reduced costs, improved performance, and the identification of complex relationships. The risks of AI, according to Assistant Secretary Steele, fall into three categories: (i) the design of AI, which can raise discrimination concerns, such as in consumer lending; (ii) how humans implement AI, including the possible overreliance on AI to render financial decisions; and (iii) operational and cyber risks, including the dangers around data quality and security, as AI consumes significant volumes of data.
Last, Assistant Secretary Steele discussed how policymakers are addressing privacy and discrimination concerns with AI. He mentioned the White House’s Blueprint for an AI Bill of Rights, which would require, among other things, regular assessment of algorithms for certain disparities and biases. Assistant Secretary Steele also cited regulatory actions that can address the risks of AI, including a CFPB rulemaking under the FCRA and Federal banking agency guidance on third party risk management.
Congressional Democrats urge White House to make AI principles mandatory
On October 12, a coalition of more than two dozen Democratic senators and House members urged President Biden to make any anticipated executive order on how the federal government handles artificial intelligence (AI) technology binding on the federal government and those who receive federal funds, and not a mere statement of principles. “By turning the AI Bill of Rights from a non-binding statement of principles into federal policy, your administration would send a clear message to both private actors and federal regulators: AI systems must be developed with guardrails,” the Democrat’s letter states. Additionally, these legislators asked the president to incorporate the White House Blueprint for an AI Bill of Rights, a voluntary roadmap that identifies five principles intended to guide both the government’s and private companies’ design, use and deployment of automated systems fueled by AI (covered by InfoBytes here).
FTC roundtable on generative AI and the creative economy
On October 4, the FTC hosted a virtual roundtable to hear directly from creators on how generative artificial intelligence (AI) is affecting their work and livelihood. FTC Chair Lina Khan noted the Commission’s role enforcing rules of fair competition and its intention to “keep pace” to fully understand how new technology can be used and the negative impacts. Khan reminded the audience that there is no “AI exemption” to the laws regarding unfair methods of competition or collusion, discrimination, or deception. In addition, Commissioner Kelly Slaughter mentioned that the generative AI dynamic of web scraping is often performed without the knowledge of creators whose livelihood depends on displaying a public portfolio.
Duncan Crabtree-Ireland, chief negotiator for SAG AFTRA, stated that the companies using AI technology must receive informed consent and compensation for the use of individuals’ likenesses. John August, committee member for the Writers Guild of America, explained the union’s position that AI generated content can be considered an unfair method of competition, and that creators deserve protection against the unfair use of their work. Douglas Preston, author and former president of the Writers Guild of America, shared that he is part of a class action lawsuit with 16 other authors against a generative AI platform.
Overall, participants asked the FTC to initiate rulemaking, and support in federal legislation as necessary to underpin the protection of creators’ livelihood, as technology is outpacing law and regulation. They suggested that moving forward, platforms should request creators to opt-in, rather than opt-out of the use of their works to teach and support generative AI output. Moreover, participants repeatedly mentioned a need for disclosures for consumers, so they know when synthetic AI-generated voices, among other things, are used in content generated for consumers.
Senate Banking Committee debates AI in finance: balancing opportunities and risks
On September 20, the Senate Banking Committee held its first hearing on the use of artificial intelligence (AI) in the financial services space, further revealing a partisan divide regarding the utilities and risks associated with the technology. In his opening remarks, Committee Chairman Sherrod Brown cautioned that although AI technology promises new efficiencies and opportunities, it also carries unique risk of harm to consumers and workers in the financial services space, including the potential for discriminatory practices in lending and the reduction of job security and wages. He called for “rigorous testing and evaluation of AI models” before they are put to use by companies and other organizations in the financial services space. By contrast, Chairman Brown’s counterpart, Acting Ranking Member Mike Rounds touted the successes that similar technologies have brought to the financial services industry and stated that AI presents more upside than risk, particularly in the space of fraud detection and prevention. He urged Congress to take a “pro-innovative” role in regulating AI and warned that halting or slowing progress in this space will only allow competitors in other countries to develop more advanced technologies.
The Committee then heard from several witnesses working in the AI and machine learning (ML) space, including both industry professionals and professors. Overall, these witnesses championed the potentials of AI, explaining its potential for “greater efficiency, enhanced insight, expanded access, and lower costs” but cautioned that the utilization of AI and ML is not a “one size fits all” model and will require careful consideration and oversight to minimize the risks it could pose to consumers and the markets.
CFPB issues guidance on adverse action reasons by creditors using AI
On September 19, the CFPB issued guidance about legal requirements that creditors must follow when using artificial intelligence and other complex models.
In prior guidance, the agency stated that lenders must provide specific and accurate reasons for adverse actions against consumers. The latest guidance expanded upon that prior guidance to clarify that lenders cannot simply use CFPB sample adverse action forms and checklists when taking adverse actions against consumers, but must explain the reasons for such adverse actions to help improve consumers’ chances for future credit, and protect consumers from illegal discrimination.
In its announcement of the updated guidance, the CFPB discussed the potential that consumers may be denied credit as a result of the increased use of complex, predictive decision-making technologies to analyze large datasets that may include consumer surveillance data or other information that the consumer may not believe is relevant to their finances. The agency confirmed that creditors must disclose the specific reasons for adverse action, even if consumers may be surprised, upset, or angered to learn their credit applications were being graded on data that may not intuitively relate to their finances. According to the guidance, a creditor is not absolved from the requirement to specifically and accurately inform consumers of the reasons for adverse actions because the use of predictive decision-making technologies in their underwriting models makes it difficult to pinpoint the specific reasons for such adverse actions.
California governor signs executive order on GenAI
On September 6, California Governor Gavin Newsom signed an Executive Order (E.O.) instructing state agencies to evaluate how generative artificial intelligence (GenAI) may impact the State and its residents. Specifically, the E.O. requires certain state agencies to provide a report to the Governor which will examine “the most significant, potentially beneficial uses” of GenAI tools by the state. The report must also discuss “the potential risks to individuals, communities, and government and state government workers” from GenAI tools. Certain California agencies, including the Department of Technology, must perform a “risk analysis of potential threats to and vulnerabilities of California’s critical energy infrastructure by the use of GenAI.” The E.O. also requires that the State issue “general guidelines for public sector procurement, uses, and required training for use of GenAI,” and consider pilots of GenAI projects to be tested in “sandboxes.” Lastly, the E.O. directs the State to pursue a formal partnership with certain California higher education institutions to study the impacts of GenAI and support its safe growth.
Chopra announces rulemaking for data brokers
On August 15, CFPB Director Rohit Chopra delivered remarks at the White House Roundtable on the harms of data broker practices. Referencing the prevalence of artificial intelligence in data surveillance, Chopra highlighted a common practice employed by companies: the gathering, leveraging, and sharing of data concerning consumers, including individual pieces of data or consumer profiles, without consumers’ awareness with third parties that employ AI to formulate forecasts and decisions. These detailed data sets can also easily be exploited by bad actors, Chopra warned. Chopra announced that after conducting an inquiry into data broker practices, the Bureau will endeavor to make rules regulating data broker surveillance to ensure sensitive data is not misused and on par with FCRA requirements.
Two proposals are being considered: the first proposal would define the term “consumer reporting agency” to include a data broker that sells certain types of consumer data, thereby triggering requirements to ensure accuracy and to govern disputes concerning the reporting of inaccurate information. The second proposal will address existing confusion by clarifying the existing confusion concerning “the extent to which credit header data constitutes a consumer report, [and] reducing the ability of credit reporting companies to impermissibly disclose sensitive contact information that can be used to identify people who don’t wish to be contacted, such as domestic violence survivors.” The rulemaking will also complement efforts put forth by the FTC.
Biden E.O. labels China as a country of concern; Treasury issues ANPR
On August 9, the White House announced that President Biden signed an Executive Order on Addressing United States Investments In Certain National Security Technologies and Products In Countries of Concern (E.O.). The President explained his view that some countries create national security risks by using particular technologies to advance their “military and defense industrial sectors” rather than civilian and commercial sectors. Biden stated that although open global capital flows substantially benefit the U.S., the E.O. stated that certain investments may “accelerate and increase the success of the development of sensitive technologies and products in countries that develop them to counter United States and allied capabilities.” The E.O. directs the Secretary of the Treasury to issue regulations that (i) prohibit U.S. persons from participating in specific transactions associated with particular technologies and products that present a significant and urgent risk to national security; and (ii) mandate U.S. persons to notify the Treasury about different transactions related to specific technologies and products that may contribute to the national security threat. The annex to the E.O. identifies China, including Hong Kong and Macau, as the sole nation warranting concern. The E.O. also requires the Secretary to communicate with Congress and the public regarding the E.O., consult with other agency leaders, assess whether to amend the regulations within one year, and provide reports to the President and Congress.
The Treasury simultaneously issued an Advance Notice of Proposed Rulemaking, requesting public comment on the implementation of the E.O., along with proposed definitions of key terms, before the program goes into effect. Written comments may be submitted within 45 days here.