Securities Regulation Daily Wrap Up, AI NEWS—NASAA urges Congress to drop 10-year moratorium on AI regulation, (May 28, 2025)

By Jay Fishman, J.D.

U.S. Senate Byrd Rule prohibits extraneous policy proposals—like the AI policy—in a budget reconciliation.

The North American Securities Administrators Association, Inc. (NASAA), in a May 16 memo to U.S. Senators John Thune (R-SD) and Chuck Schumer (D-NY) and to U.S. Representatives Hakeem Jeffries (D-NY) and Mike Johnson (R-LA), cautioned them against permitting an artificial intelligence (AI) policy provision in the House’s recently passed budget reconciliation bill. The provision provides a 10-year moratorium on adopting any state or local law that regulates AI.

Byrd Senate Rule. As a preliminary matter, NASAA declared that the Senate’s Byrd Rule prohibits the AI provision in a budget reconciliation bill. Specifically, the budget reconciliation process prohibits including provisions deemed “extraneous”; the AI provision, NASAA says, is extraneous because it does not primarily affect federal spending or revenue, resulting in its being merely incidental to broader policy goals.

Concern for everyday Americans. But NASAA’s main pitch urging Congress to eliminate the provision: it would leave Americans at a greater risk of falling victim to online scams and negatively affect states’ ability to foster innovation, including adoption of laws and regulations for grappling with new and evolving technologies. A lot of unrelenting victimization can occur over 10 years with an unregulated AI and has already taken place. NASAA cited a 2024 report from the Stop Scams Alliance, warning that AI can “turbocharge” fraud by facilitating phishing attacks and deepfakes. Similarly, in 2024, the FBI Internet Crime Complaint Center issued a public service announcement that criminals are using AI-generated text, images, audio and video to perpetrate financial fraud, thereby contributing to the $50.5 billion lost to online scams over the past five years.

Separately, NASAA maintained that the moratorium would curtain the organization’s effort to protect retail investors as the chief state regulatory agency and “local cop on the beat.” Given how fast we’ve already seen AI morph into different forms, including fraudulent forms online, states must be able to create innovative financial services that curb the negative impacts of AI. The moratorium, NASAA asserts, would undermine states’ value as laboratories of innovation particularly in this rapidly evolving tech landscape.

The moratorium’s exceptions—no help. NASAA also highlighted the AI moratorium exceptions, emphasizing that they will not resolve their concerns. The exceptions, NASAA declares, are for state AI laws and regulations that:

1. Have the primary purpose of removing legal impediments to, or facilitating the deployment or operation of, an AI model, AI system, or automated decision system;

2. Have the primary purpose of streamlining licensing, permitting, routing, zoning, procurement, or reporting procedures that facilitate the adoption of AI models, AI systems, or automated decision systems;

3. Do not impose any substantive design, performance, data-handling, documentation, civil liability, taxation, fee, or other requirement on AI models, AI systems, or automated decision systems unless such requirement is imposed under federal law or, in the case of a requirement imposed under a generally applicable law, is imposed in the same manner on models and systems other than AI models, AI systems, and automated decision systems that provide comparable functions to those systems; or

4. Do not impose a fee or bond unless the fee or bond is reasonable and cost-based and, under such fee or bond, AI models, AI systems, and automated decision systems are treated in the same manner as other models and systems that perform comparable functions.

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