The American Fintech Council is calling on the Treasury Department to help clear regulatory obstacles to the use of artificial intelligence in countering risks associated with digital assets such as money-laundering, in a proceeding mandated by the recently enacted “stablecoins” law.
“AFC respectfully recommends Treasury collaborate with the prudential banking regulators to incentivize the use of AI in financial services,” the industry group says in its Oct. 15 submission to the department.
“Also,” it says, “AFC recommends additional collaboration with the prudential banking regulators and industry stakeholders to develop and administer resources that will improve examiners’ understanding of the risk profiles and use cases for AI in financial services. Thus, ensuring that examination teams are effectively overseeing the use of AI technologies in efforts to combat illicit activities in the digital assets space.”
Treasury is examining how AI can be used to combat money-laundering and “mitigate illicit finance risks involving digital assets,” under requirements in the Guiding and Establishing National Innovation for U.S. Stablecoins Act -- the so-called GENIUS Act signed into law in July -- and in line with President Trump’s Jan. 23 Executive Order 14178 on “Strengthening American Leadership in Digital Financial Technology.”
The GENIUS Act establishes a first-time regulatory framework around digital assets and “explicitly subjects stablecoin issuers to the Bank Secrecy Act, thereby clearly obligating them to establish effective anti-money laundering and sanctions compliance programs with risk assessments, sanctions list verification, and customer identification,” the White House said in July.
The comment period is scheduled to close on Oct. 17 under a request for comment issued Aug. 18 by Treasury.
AFC in its comments says, “In practice, to combat the activities of illicit actors, industry participants continue to invest heavily in regulatory technology (regtech) tools. Regtech tools, many of which are provided by AFC member companies, have proved instrumental in effectively leveraging data to identify and mitigate illicit activities that leverage digital assets. Innovative banks are particularly prevalent in their use of regtech tools in an effort to perform robust anti-money laundering (AML) efforts, as well as root out scams and fraud activities targeted towards their consumers.”
“Based on conversations with our members,” the trade group says, “it is our understanding that the use of regtech tools, especially those that leverage AI, by regulated financial institutions has been met with mixed engagement by examination teams at the federal level.”
AFC acknowledges that, “The use of AI in regtech tools used to combat illicit activities in the digital assets space presents a unique challenge for examiners, because they are faced with the use of a complex technology that is being applied to efforts in an emerging, and equally complex, subsector of financial services.”
But the group stresses, “Given AI’s growth and potential long-term impact on the financial services industry, it is crucial that examiners understand the technology and properly assess its usage.”