Bloomberg News
WASHINGTON — The Biden administration flexed its executive power on Monday with an order aimed at curbing the misuse of artificial intelligence — a move that leaves open questions about how deeply AI policy will impact the financial industry.
President Joe Biden’s AI executive order uses the Defense Production Act, which allows the president to mobilize industry to support national defense. The order will require AI developers that pose “a serious risk to national security, national economic security or national public health and safety” to notify the government when training their systems. The order also recommends that content created by artificial intelligence be labeled to curb the spread of disinformation, a critical concern for the political system as the United States approaches the 2024 presidential election.
Most importantly for banks, the order also directs the Consumer Financial Protection Bureau and the Federal Housing Finance Agency to monitor for lending bias. The Department of Housing and Urban Development, along with the CFPB, will issue guidance on discrimination in tenant screening systems. The Treasury Department will also produce a report on artificial intelligence-specific cybersecurity risks for financial institutions.
“AI is all around us,” Biden said in remarks before he signed the order on Monday. “To realize the promise of AI and avoid the risk, we need to govern this technology.”
Banks are increasingly interested in AI, though their regulators have struck a wary tone. The banking industry is still assessing the immediate impact of the executive order on financial institutions and their AI projects.
“We are particularly pleased the administration is looking at AI holistically across multiple industries and recommending sector-specific risk assessments,” said Sarah Grano, an American Bankers Association spokesperson. “Banks are successfully and safely using AI today, and we believe new iterations of the technology can enhance innovation, compliance, risk management and a host of other important bank functions moving forward.”
She said that ABA will “continue to review the executive order and expect to learn more about how it will be implemented.”
The most direct link from the executive order to the banking industry is the President’s instructions to the CFPB. While the order doesn’t tell the bureau to do anything not already in its remit— policing for unfair lending practices, regardless of the technology being used — Aaron Klein, senior fellow in Economic Studies at the Brookings Institution, said that the order could reprioritize the bureau’s work to AI related enforcement actions and guidances.
“It certainly highlights the work,” he said. “Just because an agency has a person working on an issue, doesn’t mean it’s front and center and top of the agenda. Executive orders like this move up the prioritization of work streams in agencies. So even if there was someone working on it, there’s someone working on a lot of stuff and the question becomes, what stuff makes the top of the pile?”
Biden made it clear that the intent of the executive order was to present a first draft of AI policy, and that Congressional action and further agency guidance and rulemaking might be necessary. Senate Majority Leader Sen. Chuck Schumer, D-N.Y., who attended Biden’s signing of the executive order, has created a bipartisan working group on AI policy, which will meet with Biden tomorrow to discuss legislation.
“Of course executive orders are limited, and the President and I agree that we need legislation,” Schumer told reporters after Biden’s remarks.
The Defense Production Act allows the administration to restrict AI usage in some cases, such as government contracts, but to go further into the private sector, Schumer said that the government would need to pass laws.
“It is not the White House’s first word on AI and won’t be the last,” said managing director of Capital Alpha Partners Robert Kaminski. “The order is being advertised as a landmark action, but it does not ‘regulate AI’ in a way that an act of Congress could. The scope of the order looks broad, but the focus is ultimately the federal government’s own interaction with AI.”
Kaminski said that immediate Congressional action on AIis unlikely.
“Artificial intelligence is a classic Washington policy topic,” he said. “It has a broad impact and many stakeholders. It feeds endless Congressional hearings and think tank panel discussions. I am skeptical any significant legislation can pass Congress on this issue, which explains the administration’s focus on executive action.”
Republicans in Congress didn’t immediately denounce the executive order, but they have historically cheered the development of technology in financial institutions, and discouraged regulators from curbing innovation in the sector.
“At a time when there are many exciting new technologies like digital assets, quantum computing, and the greater use of artificial intelligence, it’s important to remember that innovation and technology have always been at the heart of financial services,” said Rep. French Hill, R-Ark., at a hearing he chaired on innovation in financial services last week.
He continued later: “Changes driven by technology also merit thoughtful consideration of how they affect existing laws and regulations, particularly when laws and regulations inhibit that innovation. The key is that we have balance between both consumer protection and innovation. That being said, I think the benefits that fintech firms—and the products and services they provide—far exceed the risks they pose.”
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