Subcommittee Examines AI in Financial Regulation and Innovation

Published Date : 20/09/2025 

The Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence held a hearing to evaluate the role of AI in financial regulation and innovation, emphasizing its potential to enhance efficiency and consumer protection. 

Yesterday, the Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence, chaired by Bryan Steil (WI-01), convened a hearing to assess how financial regulators and firms are utilizing artificial intelligence (AI). The hearing aimed to explore the potential benefits and challenges of AI in the financial sector, including its impact on efficiency, cost reduction, and consumer protection.

On the potential for regulators to use AI, Chairman French Hill (AR-02) highlighted the rapid changes AI is bringing to the financial system. “AI is, of course, rapidly changing the way Americans live, work, and engage with our financial system. Last congress, we explored AI practices at financial services firms, regulators, and supervisors. Congressman Bill Foster and I served on Speaker Johnson’s and Minority Leader Jeffries’ bipartisan Congressional AI task force. In all these efforts, we saw demonstrated how AI has the potential to boost efficiency, cut costs, and strengthen the tools used to protect consumers from fraud detection to anti-money laundering,” Hill declared.

Regarding the Trump Administration’s focus on advancing U.S. leadership in AI, Subcommittee Chair Steil noted a shift in approach compared to the Biden Administration. “If we think about what the Biden Administration did, they really took an attitude to the extreme in their handling of artificial intelligence. Fortunately, President Trump has reversed course on this by issuing Executive Order 14179 to Remove Barriers to American Leadership in AI and releasing America's AI action plan in July of 2025. This approach can really accelerate AI development through a try-first approach that removes some of the red tape and onerous regulations,” Steil said.

The issue of AI and the spread of misinformation was addressed by Rep. Zach Nunn (IA-03). “I want to be able to dive into a couple of issues that have been addressed when it comes to artificial intelligence. First and foremost, the idea of misinformation and how it happens not only in the financial space but across our government. AI has lowered the barrier to entry. It's allowed misinformation to expand at an accelerated rate. We saw it even this week, tragically, with the death of Charlie Kirk, Russian bots providing inception for everything from conspiracy theories to misaligning our own communications right here in our own country,” Nunn said.

Rep. Bill Huizenga (MI-04) questioned how the U.S. can maintain its lead in the AI arms race with China. “We often hear of an arms race with China that, if lost, would threaten our national security and the United States global economic dominance. How can Congress and the U.S. Government writ large ensure that the United States outpaces China in the AI space?” Dr. Christian Lau, Co-Founder and President of Dynamo AI, responded, “Combining open marketplaces that foster innovation allows different folks to compete, and then we get to choose the best ones for our use cases, which is absolutely essential for us to be competitive in this arms race.”

The importance of clear rules to foster innovation was emphasized by Rep. William Timmons (SC-04). “This is a technology that will have a significant impact on how American companies and consumers engage with our evolving financial systems. In order for the United States to remain a global leader in innovation, we must establish clear rules of the road that allow the free market to thrive, and we must do so thoughtfully and effectively,” Timmons said.

Safeguarding against AI fraud was a key concern raised by Rep. John Rose (TN-06). “We're in a moment where the defense has to keep up with the offense. We want to make sure that our financial institutions are empowered to have the same tools to detect fraud that the fraudsters are using to advance it. What's most important is that our institutions, whether they're small banks or large ones, have access to that state-of-the-art screening technology,” Rose said.

Witnesses echoed the committee’s efforts. Dr. David Cox, Vice President of AI Models at IBM and Director of the MIT-IBM Watson AI Lab, emphasized the need for robust security throughout the AI lifecycle. “Security must be embedded throughout the AI lifecycle — from data gathering and preprocessing, to model training and development, to deployment and usage. A robust, risk-based approach secures not only the data and the models, but also the infrastructure they depend upon. IBM’s integrated governance program (IGP) puts this into practice, shifting away from reactive compliance toward continuous oversight across data, privacy, security, and AI systems,” Cox said.

Dr. Christian Lau, Co-Founder and President of Dynamo AI, discussed the potential of AI in financial institutions. “To date, financial institutions have looked to AI primarily to enhance productivity, return on investments, increase worker and operational efficiency, and establish effective AI governance foundations. AI-powered chatbots help employees understand company policies and business line standards, better execute processes, and engage with customers and colleagues. AI is also used to generate code for technology systems and is expected to extend across the financial services value chain, including financial product operations, investment analysis, and customer experience,” Lau said.

Mr. Matthew Reisman, Director of Privacy and Data Policy at the Center for Information Policy Leadership, highlighted the benefits of AI in financial services. “For years, machine learning has strengthened financial services institutions’ ability to combat fraud, provide richer and more tailored services to existing customers, and extend services to new ones. Generative AI has boosted productivity across functions, from software development to customer service. We are now in the early days of agentic AI, which shows promise for enhancing the experiences of businesses and customers alike. Potential applications in the sector are extensive, from streamlining Know Your Customer processes to back-office operations like payroll and invoicing, to online banking, and shopping powered by agentic commerce,” Reisman said.

Mr. Daniel Gorfine, Founder and CEO of Gattaca Horizons, and former Chief Innovation Officer and Director of LabCFTC, discussed the benefits of AI in financial services. “AI applications in financial services have already yielded tremendous benefits to consumers, small businesses, market participants, and service providers, and regulators tasked with supervising financial institutions, protecting consumers, and ensuring market integrity. By processing large data sets, AI tools can offer predictive insights and analytics that allow for more accurate, efficient, and low-cost decision-making, including in the context of determining creditworthiness when a traditional credit score may preclude access. Importantly, especially in higher-risk applications, humans are often ‘in the loop,’ with AI helping to inform, augment, and improve their work or decision-making,” Gorfine said. 

Frequently Asked Questions (FAQS): 

Q: What is the role of AI in financial regulation?

A: AI can enhance efficiency, reduce costs, and improve consumer protection in financial regulation by providing predictive insights and automating processes.

Q: How can AI help combat financial fraud?

A: AI can detect fraudulent activities more accurately and quickly by processing large data sets and identifying patterns that humans might miss.

Q: What are the potential risks of AI in financial services?

A: Risks include the spread of misinformation, increased cybersecurity threats, and the potential for bias in AI algorithms if not properly managed.

Q: How can the U.S. maintain its leadership in AI?

A: The U.S. can maintain its leadership by fostering innovation through open marketplaces, reducing regulatory barriers, and investing in research and development.

Q: What is the role of human oversight in AI applications?

A: Human oversight is crucial, especially in higher-risk applications, to ensure that AI tools are used ethically and effectively, and to maintain accountability. 

More Related Topics :