00:00The Securities, Insurance and Investment Subcommittee to order.
00:03I want to begin by thanking Ranking Member Warner for his partnership,
00:06not only in this subcommittee, but on countless other initiatives.
00:10He is an incredible leader on AI policy issues and, of course, in the intelligence space as well.
00:15Next, I want to thank the members of our bipartisan witness panel for joining us today,
00:20Mr. Kalanich, Mr. Cohen, and Dr. Cox.
00:24We appreciate the expertise you bring to this important discussion
00:27on the growing role of artificial intelligence in capital and insurance markets.
00:33The title of today's hearing, Guardrails and Growth, captures what we're here to do,
00:39examine how AI is transforming financial services,
00:43and explore how Congress can foster innovation while promoting transparency, accountability, and smart oversight.
00:51AI is here, and it is not going away,
00:54and it has already made a significant impact across the financial system.
00:59In capital markets, firms are using AI to analyze massive volumes of data in real time,
01:05from trading patterns to financial disclosures, to guide investment decisions,
01:10execute trades more efficiently, and reduce costs.
01:13Asset managers are using AI to identify emerging risks and opportunities that traditional tools might miss,
01:21while exchanges are integrating AI into market surveillance systems to detect manipulation and protect market integrity.
01:29In insurance, AI is reshaping how companies assess risk and deliver coverage,
01:34particularly when it comes to underwriting businesses.
01:36Insurers are using machine learning to analyze structured data, such as claims histories,
01:43industry benchmarks, and even real-time operational data to better understand a company's risk profile.
01:49These tools are helping insurers price policies more accurately, speed up underwriting decisions,
01:54and expand coverage to companies that previously may have been too complex or too risky to evaluate.
01:59That said, underwriting policies for businesses using AI is exceptionally difficult,
02:06because the insurance market's understanding of generative and other forms of AI is still in its infancy.
02:12More work needs to be done here to provide clarity, whether by congressional action or through the work of standard-setting bodies,
02:20like the National Institute of Standards and Technology, or NIST.
02:25Fraud prevention is another area where AI is already delivering tangible results.
02:31According to the Card Policy Council, one major credit card network's AI-driven security enhancements
02:38have boosted their fraud detection rates by up to 300 percent
02:42and prevented over $50 billion in fraud in just the past three years.
02:48Another has blocked over $40 billion in attempted fraudulent transactions.
02:54McKinsey has reported that AI systems can reduce fraud detection costs by 30 percent
03:00while improving true positive detection rates and reducing false alerts.
03:06This is exactly the kind of progress we should be encouraging.
03:11That's why today I'm reintroducing the Unleashing AI Innovation in Financial Services Act
03:17with Senators Heinrich, Kim Tillis, and House Financial Services Chairman French Hill.
03:23This bipartisan bill that would create a venue for financial institutions and regulators
03:30to work together to test AI projects for deployment.
03:34By creating a safe space for experimentation, we can help firms innovate and regulators learn
03:41without applying outdated rules that don't fit today's technology.
03:46We've also seen how the wrong approach can create serious problems.
03:50Last Congress, former SEC Chair Gary Gensler proposed a predictive data analytics rule,
03:57which I believe would have imposed sweeping, unclear restrictions on financial firms developing
04:02or deploying AI without a workable framework.
04:07That rule would have slowed innovation and raised compliance costs and blocked out smaller players.
04:12That's why Ranking Member Warner and I led the opposition to stop that proposal.
04:16We need regulatory frameworks that both support innovation and protect consumers.
04:23As AI continues to evolve, regulators also have an opportunity to modernize their own operations.
04:31AI can help agencies conduct smarter supervision, reduce unnecessary burdens on smaller institutions,
04:37and focus resources where they are most needed.
04:41There's a real opportunity for public-private collaboration in this space,
04:45and I hope today's hearing will help or helps us think more clearly about how to make that happen.
04:52I want to again thank our witnesses for being here today.
04:55You are experts in your fields, and your insights are critical as we consider next steps in policy and proposed legislation.
