Securities Regulation Daily Wrap Up, AI NEWS—California lawmakers pass bill to require largest purveyors to conduct due diligence, (Aug 29, 2024)
The weakened bill would apply to the largest firms creating AI models and would rely on existing state agencies rather than create a new one to oversee frontier models.
The California Senate today concurred in a set of amendments put in place by the state assembly that weakened the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act, sponsored by Sen. Scott Wiener (D-San Francisco), that was initially passed by the state senate with much stronger provisions. The amended bill will apply to “covered models” that cost more than $100 million to train. The Senate concurred in the amended bill by a vote of 29-9. The bill now goes to Governor Gavin Newsom’s desk.
The bill had faced significant opposition from some in the AI industry, who had argued that it may stifle innovation and force companies to leave California. During debate in the state assembly and senate, no member stood in opposition and most who spoke in favor of the bill said that AI likely would go unregulated unless California took action because of the perceived legislative gridlock at the federal level.
On the state senate floor, Wiener acknowledged that the amended bill narrowed the requirements for developers, lessened the possibility of civil or criminal penalties, and eliminated a new agency that would have overseen frontier models in favor of existing state regulators.
“Innovation and safety can go hand in hand—and California is leading the way,” said Senator Wiener in a press release issued shortly after the state senate concurred in the assembly’s amendments. “The Legislature has taken the truly historic step of working proactively to ensure an exciting new technology protects the public interest as it advances. SB 1047 is a light touch, commonsense measure that codifies commitments that the largest AI companies have already voluntarily made.”
In the state assembly, Rep. Steve Bennett (D-Ventura) described the bill as the “lightest touch” regulations the state could impose on AI developers. “Artificial intelligence has enormous potential to benefit our state, our nation, and the world. Artificial intelligence also has an enormous potential to be misused and cause serious problems that are beyond our ability to even imagine.”
Bennett’s closing remarks denied that the bill would curb innovation because he said it does not apply to smaller companies. He also said large AI companies would not gain an undue advantage over smaller startups because the bill will create a consortium called “CalCompute” that will maintain a public cloud computing environment that will be dedicated to the safe and ethical development and deployment of AI.
California is not the only state that has sought to regulate AI. In May 2024, Colorado enacted the Consumer Protections in Interactions with Artificial Intelligence Systems legislation to address the problems that may arise from the highest risk AI models in what is one of the most comprehensive AI bills in the U.S. thus far enacted into law.
The federal government has not enacted comprehensive AI legislation, but the Biden Administration did issue an Executive Order last year that required many executive branch agencies to issue additional guidance on the use of AI. Federal lawmakers, mostly in the Senate, have issued frameworks for AI regulation that range from leaving much of the regulation of AI to existing agencies under their existing authorities to creating a new regulatory body to license high risk AI models.
Senator Mike Rounds (R-SD), one of four senators, including Majority Leader Chuck Schumer (D-NY), who have issued their own AI framework that would lean on existing federal agencies, recently announced his plans to introduce a package of AI bills, including two bills focused on securities and financial regulators. The Unleashing AI Innovation in Financial Services Act would direct the Fed, FDIC, OCC, SEC, CFPB, NCUA, and the FHFA to create regulatory sandboxes for AI test projects. The Increasing AI Transparency in Financial Services Act would require the Fed, FDIC, OCC, NCUA, and the CFPB to report to Congress on their gaps in knowledge about AI.
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