House Committee Hears About Benefits and Risks of New Financial Technologies

WASHINGTON — Lawmakers on the House Financial Services Committee spoke Wednesday in favor of deregulation and expanded use of artificial intelligence in the housing and finance industries.

They described the potential applications of AI as enormous, perhaps transformational for mortgage lenders and investment houses.

First, regulations need to be rewritten that impede growth of the industries, according to finance and technology expert witnesses at a hearing.

Rep. Patrick McHenry, R-N.C., who chairs the committee, said, “America is falling behind Europe in technological invention, innovation and adoption.”

Modernizing regulations could lead to more opportunities for digital assets, consumer finance and artificial intelligence, he said.

“American public markets have been constrained by onerous regulatory requirements,” McHenry said.

He and Rep. Maxine Waters, D-Calif., this week introduced a bill intended to encourage technological innovation in the housing and finance industries. It would direct federal regulators to examine benefits and risks of AI before developing strategies to implement it more widely in government and the private sector.

Another part of the bill seeks to get rid of regulations that might be roadblocks to adopting AI.

Waters described issues discussed at the hearing as “a vision for the future of finance.”

The hearing focused on potential innovations for home valuation, loan underwriting and servicing in the housing industry and cybercrime, debt collection and investment strategies in the financial sector.

The committee also has endorsed the Financial Innovation and Technology for the 21st Century Act, also known as “the crypto bill,” that the House approved in May. The groundbreaking pending legislation would provide regulatory clarity for the cryptocurrency industry.

FIT21 would change federal regulations for cryptocurrencies by giving the Commodity Futures Trading Commission jurisdiction over digital commodity trading with a goal of creating incentives for investment. 

One of the innovations the lawmakers hope to encourage is stablecoins.

Stablecoins are a type of cryptocurrency whose value is tied by regulation to some other asset, such as U.S. currency or gold. The currency or gold are called reference assets.

By tying the two assets together, stablecoins could avoid the volatility of other digital assets like Bitcoin.

So far, Congress has been unable to decide on a reference asset and to authorize regulations for government-backed stablecoins.

Stablecoins “could be a life force for many in the United States,” Denelle Dixon, chief executive of Stellar Development Foundation, a nonprofit that encourages cryptocurrency investment, said during the hearing.

Several lawmakers, such as Rep. Emanuel Cleaver, D-Mo., expressed concern over AI being used to steal personal data, which then could be used for identity theft.

“I think there also are great risks, in spite of the fact that there are great opportunities,” Cleaver said.

He asked about the possibility of educating financial workers on how to avoid the risks.

Alan Butler, director of the Washington, D.C.-based Electronic Privacy Information Center, acknowledged the risks when he said that “we’ve seen increasingly troubling stories” of military and law enforcement personnel having their private information leaked to cyber thieves.

“Someone has to be there to be a backstop,” Butler said during discussion of improving data security.

Henry Ward, chief executive of the investment management company Carta, Inc., warned against overlooking the benefits of new financial technology out of concern for security.

“Any new technology looks like magic when it first appears,” Ward said. “AI looks like magic.”

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