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“Innovation at the Speed of Markets: How Regulators Keep Pace with Technology”

House Committee on Financial Services
March 26, 2026 (recording linked here)

HEARING INFORMATION

Witnesses and Written Testimony:

• Mr. Randall Guynn, Director, Division of Supervision and Regulation, Federal Reserve Board

• Mr. Jay Gallagher, Senior Deputy Comptroller and Chief of National Bank Examiner, Office of the Comptroller of the Currency

• Mr. Ryan Billingsley, Director, Division of Risk Management Supervision, Federal Deposit Insurance Corporation

• Ms. Amanda Parkhill, Acting Director, Office of Examinations and Insurance, National Credit Union Administration

HEARING HIGHLIGHTS

QUICK SUMMARY

• Balancing Innovation and Oversight: Lawmakers and witnesses broadly agreed that rapid advances in artificial intelligence, digital assets, and real-time payments are transforming the financial system. Members emphasized that regulators must keep pace with these changes without stifling innovation that supports economic growth and U.S. competitiveness. Witnesses described ongoing efforts to modernize supervision, adopt new technologies, and engage more directly with industry. The central tension focused on how to enable innovation while maintaining safety, soundness, and consumer protection.

• Diverging Views on Regulatory Approach: Republicans emphasized the need to reduce regulatory barriers and foster innovation, arguing that prior policies discouraged technological development and pushed activity overseas. Democrats raised concerns that weakening enforcement and scaling back agencies like the SEC and CFPB left consumers exposed to fraud and misconduct. This divide shaped discussions around the appropriate role of government in overseeing emerging financial technologies. The absence of key consumer protection agencies was also highlighted as a gap in the hearing.

• Growing Role of AI in Supervision and Risk: Witnesses described how regulators are beginning to use artificial intelligence to improve supervision, including analyzing large datasets, identifying risks earlier, and enhancing cybersecurity defenses. AI was also discussed as both a tool to combat fraud and a potential risk if used by bad actors or foreign adversaries. Members raised concerns about outdated model risk guidance and the need for coordinated federal strategies. There was general agreement that AI will play an increasingly central role in both financial services and regulation.

• Emerging Risks from New Financial Products: Members highlighted concerns about prediction markets, digital assets, and tokenization, including the potential for insider trading, national security risks, and regulatory gaps. Witnesses generally noted that many of these activities fall outside traditional banking oversight, pointing to agencies like the SEC and CFTC as more relevant regulators. Discussions also addressed risks associated with faster payment systems and the potential for rapid bank runs in a 24/7 financial environment. These issues underscored the need for updated regulatory frameworks.

• Need for Coordination and Clear Frameworks: Both lawmakers and witnesses emphasized the importance of interagency coordination and clear regulatory guidance to reduce fragmentation and uncertainty. Agencies described ongoing efforts to align on rulemaking, including implementation of the GENIUS Act and updates to third-party risk and fintech supervision. Members also discussed proposals for a more unified federal approach to AI and financial innovation. Overall, the hearing highlighted that consistent, transparent frameworks will be critical to maintaining U.S. leadership in financial technology.

IN THEIR WORDS

SUMMARY OF OPENING STATEMENTS

• Subcommittee Chair Steil stated that rapid technological change in areas such as artificial intelligence, digital assets, and real-time payments was fundamentally reshaping the financial system. He argued that the key issue was whether regulators were prepared to keep pace with this transformation. He emphasized that regulators needed modern tools, technical expertise, and flexibility to understand risks without hindering innovation. He said fostering innovation was essential to maintaining U.S. global leadership and warned that failure to do so would push investment and jobs abroad. He also stressed that Congress must provide clear and consistent direction to reduce fragmentation and uncertainty. He concluded that the goal was to balance innovation with consumer protection to secure long-term leadership in financial markets.

• Subcommittee Ranking Member Lynch said he supported financial innovation and noted that new technologies could expand access to credit, lower costs, and improve financial security. However, he argued that these benefits depended on strong consumer protections and responsible implementation. He expressed concern that recent actions by the Trump administration had weakened regulatory oversight, including reductions in enforcement capacity at the SEC and layoffs at the CFPB. He stated that these changes risked leaving consumers and investors unprotected from fraud and misconduct. He also pointed out the absence of key regulatory agencies at the hearing, particularly the SEC and CFPB. He concluded that while the topic was important, the lack of enforcement voices limited the discussion.

• Full Committee Ranking Member Waters criticized the decision to exclude the Consumer Financial Protection Bureau from the hearing. She argued that the CFPB was the primary agency responsible for consumer protection and should have been included in discussions about financial innovation. She said that both the Trump administration and House Republicans had taken steps to weaken or sideline the agency. She expressed concern that consumers were being left without adequate representation or protection in regulatory discussions. She stated that these developments were harmful to consumers but expressed hope that future political changes could reverse course. She concluded by questioning the decision to exclude the CFPB from the hearing.

• Full Committee Chair Hill stated that financial innovation was accelerating rapidly and posed a significant challenge for federal regulatory agencies. He said agencies needed to adapt within large bureaucratic systems to effectively oversee evolving markets. He emphasized the importance of ensuring that regulators had the right structure, coordination, and expertise to respond to technological change. He noted that agencies should engage with industry and technical experts to strengthen their approach. He also highlighted the need for sufficient technical capacity to both regulate and support innovation. He concluded that improving regulatory agility was key to maintaining U.S. leadership in financial technology.

SUMMARY OF WITNESS STATEMENTS

• Mr. Guynn stated that the Federal Reserve aimed to support innovation while maintaining safety, soundness, and financial stability. He explained that innovation could improve efficiency, expand credit availability, and enhance customer experience, but also introduced risks that required oversight. He described the Federal Reserve’s supervisory role as allowing flexibility in bank business models while intervening when risks threatened stability. He emphasized the importance of increasing transparency in supervision and highlighted recent efforts to make supervisory practices more visible to the public. He identified artificial intelligence, digital assets, and bank-fintech partnerships as key areas of focus. He added that these technologies could improve payments and competition while requiring clear regulatory guidance.

• Mr. Gallagher stated that the Office of the Comptroller of the Currency was focused on supporting responsible innovation within the federal banking system. He explained that the agency supervised a large share of U.S. banking assets and played a central role in evaluating new products and services. He emphasized that the OCC took a technology-neutral approach and evaluated institutions based on compliance with regulatory standards rather than the technologies they used. He discussed efforts to support innovation through chartering, digital asset frameworks, and artificial intelligence adoption. He noted that digital assets and distributed ledger technologies offered opportunities for banks to remain competitive while requiring sound risk management. He added that the OCC was working to modernize supervision and facilitate partnerships between banks and technology firms.

• Mr. Billingsley stated that fostering innovation and adopting new technologies were critical to fulfilling the FDIC’s mission. He explained that the agency aimed to balance openness to innovation with expectations for safe and sound banking practices and compliance with consumer protection laws. He described efforts to reform supervision and reduce unnecessary regulatory barriers to technology adoption and third-party partnerships. He highlighted the growing use of artificial intelligence, machine learning, and digital assets within banks to improve efficiency and customer service. He noted that the FDIC had taken steps to remove barriers to crypto-related activities and was developing frameworks for payment stablecoins. He added that the agency was also investing in its own technology modernization and workforce training.

• Ms. Parkhill stated that the National Credit Union Administration sought to support innovation while ensuring safe and resilient credit unions. She explained that the agency had launched a deregulation initiative to review and revise outdated or burdensome regulations. She highlighted that credit unions were well positioned to adopt financial technologies that improve efficiency and expand access to services. She discussed the increasing use of artificial intelligence and other technologies in areas such as lending, fraud detection, and member services. She noted that the NCUA was integrating fintech expertise into its supervision and exploring its own use of advanced technologies. She added that the agency was implementing frameworks for payment stablecoins and working to ensure credit unions could compete effectively.

SUMMARY OF KEY Q&A

• Chair Steil asked each witness to give one concrete example of how the agency had kept pace with technological change. Mr. Guynn said the Federal Reserve had issued a policy statement stating that it would facilitate innovation consistent with safety and soundness. Mr. Gallagher said the OCC had established an Office of Innovation, now the Office of Financial Technology, to advance modern technologies and improve communication with field staff. Mr. Billingsley said the FDIC had recently issued FAQs on tokenized securities and emphasized that capital rules were generally technology neutral. Ms. Parkhill said the NCUA had recently held roundtables on AI and digital assets and was using that feedback to shape future guidance.

• Chair Steil then asked how each agency was using AI to fight fraud and whether the OCC had shifted its tone toward embracing technology. Mr. Guynn said the Federal Reserve had formed a group focused on AI and was using it to review and summarize older supervisory letters far more quickly than staff could do manually. Mr. Gallagher said the OCC was testing AI internally to improve guidance and was exploring future supervisory uses, and he added that the agency had clearly shifted toward embracing innovation so long as activities remained safe and sound. Mr. Billingsley said the FDIC was piloting AI and saw promise in using it for fraud-related functions such as alert monitoring and transaction testing. Ms. Parkhill said the NCUA was using AI in its cyber operations to block phishing threats and malicious attachments.

• Ranking Member Lynch asked whether the rapid growth of prediction markets and apparent insider trading tied to military and geopolitical events posed a systemic risk and what Congress should do next. Mr. Guynn said he was not sure prediction markets currently rose to the level of financial stability risk, noted that banks regulated by the Federal Reserve were generally not trading in those contracts, and suggested the SEC or possibly the CFTC would be the more relevant agencies for Congress to examine. Mr. Billingsley said he agreed with Mr. Guynn and was not aware of an FDIC role in that area. Ms. Parkhill said she had nothing additional to add.

• Full Committee Chair Hill asked about coordination with state bank supervisors on technology oversight and about the future of tokenized deposits on blockchain rails. Mr. Guynn said the Federal Reserve had been working constructively with state supervisors, shared training resources with them, and had discussed emerging technologies through recent meetings. Mr. Billingsley said the FDIC maintained regular conversations with state supervisors and viewed joint training and coordination as essential to effective supervision. Mr. Guynn also said prior legal analysis had generally supported the permissibility of tokenized deposits and noted that the FDIC had signaled that tokenized deposits could be treated like other insured deposits.

• Full Committee Ranking Member Waters asked about agency policies governing employee participation in prediction markets and whether agencies were increasing oversight of employees profiting from material nonpublic information, then asked about concerns over a possible skinny Fed master account. Mr. Gallagher said OCC employees were subject to federal ethics rules and internal policies, but he said prediction markets were not an OCC regulatory domain unless related risks entered the banking system and added that further details would likely need to come from agency counsel. Ranking Member Lynch clarified for Ranking Member Waters that his earlier unanswered question had concerned prediction markets and likely would have been better directed to the SEC or CFPB. Mr. Guynn said the Federal Reserve had longstanding rules and oversight to prevent insider trading and said the Fed had issued a request for information on the skinny master account proposal so the public could weigh in. Mr. Billingsley said he agreed with Mr. Guynn on employee oversight. Ms. Parkhill said any additional training or oversight details on employee conduct would be a matter for the NCUA ethics office.

• Rep. Rose asked how regulators were reducing unnecessary barriers to bank and credit union adoption of new technologies, especially through third-party partnerships and anti-fraud AI tools. Mr. Billingsley said the FDIC was updating its third-party risk management guidance and had taken a more open-minded approach to bank engagement with third parties over the previous 12 to 18 months. Ms. Parkhill said the NCUA was reviewing its regulations through a deregulation project and was encouraging both credit unions and examiners to view innovative anti-fraud tools with an open mindset. Mr. Gallagher said the OCC regularly met with banks and firms about these tools, had encouraged banks to improve their systems with technology, and was evaluating whether to update its third-party risk guidance. Mr. Guynn said AI could modernize supervision by helping regulators gather and analyze large amounts of data in days rather than months.

• Ranking Member Sherman asked whether similar financial activities should be regulated the same way whether conducted by banks or nonbanks, raised concerns about fraud coordination, and questioned how regulators were addressing AI tools that could reinforce racial bias. Mr. Guynn said the Federal Reserve adhered to the principle of same activity and same risk receiving the same regulation, though its jurisdiction over some nonbanks was limited. Ms. Parkhill said the NCUA worked with other agencies on fraud and had participated in joint efforts such as statements on elder abuse fraud. Mr. Gallagher said regulated institutions were expected to ensure their AI tools complied with the law and that the OCC evaluated both safety and soundness and legal compliance in those systems.

• Chair Stutzman asked how each agency viewed the use of AI in supervision and then asked follow-up questions about the Federal Reserve’s integration of fintech and crypto activities into ordinary supervision and the NCUA’s fintech office. Ms. Parkhill said AI could help review large amounts of structured and unstructured data and improve examination scoping, risk oversight, and risk modeling. Mr. Billingsley said AI could help the FDIC analyze large data sets more quickly through off-site monitoring. Mr. Gallagher said the OCC was using machine learning and data science to study system risks and was examining use cases for generative and agentic AI in oversight. Mr. Guynn said the Federal Reserve was combining stress testing tools with AI to identify risks earlier and respond more proportionately, and he added that moving fintech and crypto activities into standard supervision would help the United States facilitate innovation more safely and remain more competitive. Ms. Parkhill also said the NCUA had conducted outreach, issued guidance on AI and digital assets, and was now focused on stablecoins and new authorities under the GENIUS Act.

• Ranking Member Foster asked whether agencies were working with Treasury on guidance for using mobile driver’s licenses and other digital credentials in customer identification and then raised concerns about bank runs accelerating in a world of 24/7 payments and AI. Mr. Guynn said he did not know whether the Federal Reserve was yet involved in Treasury’s digital ID effort but would find out and follow up. Mr. Gallagher said the OCC was not yet engaged on that guidance but would participate as Treasury moved forward. Mr. Billingsley said he was not aware of FDIC engagement but would follow up. Ms. Parkhill said she was not aware of NCUA involvement but noted that the agency coordinated closely with Treasury and FinCEN. Ms. Parkhill also said the NCUA was aware of the risk of rapid liquidity stress and had liquidity tools and response playbooks ready once a credit union recognized the need.

• Rep. Timmons asked how the Federal Reserve fostered responsible innovation without a formal innovation office and how the NCUA was helping smaller credit unions adopt new technologies and fintech partnerships. Mr. Guynn said the Federal Reserve generally let banks drive innovation proposals and tried to facilitate permissible activities consistent with safety and soundness while training examiners not to discourage innovation reflexively. Ms. Parkhill said the NCUA supported responsible innovation through guidance to both credit unions and examiners and was incorporating new technologies into examiner training as those tools became more common. Ms. Parkhill also said smaller credit unions were especially interested in lending-related fintech uses but often faced barriers from legacy systems and inflexible contracts with core service providers.

• Rep. Garcia asked what the FDIC was doing to modernize its internal technology, how the Federal Reserve was updating its approach to AI-related model risk, and whether the NCUA faced a regulatory gap in overseeing third-party vendors. Mr. Billingsley said the FDIC was in the middle of a multi-year modernization effort to move legacy systems to cloud-based systems, had already improved areas such as applications and audit filings, and expected most of the work to be completed within a few years. Mr. Guynn said the Federal Reserve was reviewing all of its guidance, including model risk management guidance, and was coordinating system-wide across the Reserve Banks as well as with the OCC and FDIC. Ms. Parkhill said the NCUA believed it best minimized risk by focusing directly on examining credit unions, but she added that the agency did provide third-party risk management guidance and AI-related best practices that pointed institutions to current authoritative sources.

• Subcommittee Chair Davidson asked how the Federal Reserve could ensure master account decisions were objective and not discretionary and whether work on a central bank digital currency had ceased. Mr. Guynn said the process was currently discretionary at the Reserve Bank level under systemwide guidance and would be reviewed later in the year, and he added that work on a central bank digital currency was not ongoing and would require congressional authorization.

  Chair Davidson then asked how regulators were approaching open banking implementation under Section 1033. Mr. Gallagher said the OCC was aware of the operational and privacy issues and would support implementation as required by law. Mr. Billingsley said the FDIC would follow the CFPB’s rulemaking and fulfill its supervisory responsibilities accordingly.

• Rep. Liccardo asked whether the Federal Reserve would consider including ACH access in any skinny master account framework and whether it would adopt industry proposals to mitigate overdraft risk. Mr. Guynn said there was no intent to exclude eligible institutions from ACH but noted there were technical limitations and risk concerns that needed to be addressed.

  Rep. Liccardo then outlined potential solutions such as prefunding, transaction limits, and enhanced monitoring. Mr. Guynn said Federal Reserve staff would review submitted comment letters and consider proposals that effectively addressed those risks.

• Rep. Downing asked whether agencies had sufficient internal expertise to keep pace with rapidly evolving technologies and whether regulatory sandboxes could support innovation. Mr. Guynn said the Federal Reserve had adequate expertise but continued to reassess and expand its knowledge base as technologies evolved. Mr. Gallagher said the OCC had the necessary expertise and would continue to supplement it through training and hiring as needed. Mr. Billingsley said the FDIC had sufficient resources but emphasized the importance of continued learning. Ms. Parkhill said the NCUA had long trained examiners on emerging technologies and was adapting those processes to a faster pace of change.

  Rep. Downing then asked about implementation of the GENIUS Act. Mr. Billingsley said the FDIC had issued a proposed rule and was preparing additional rulemaking to meet deadlines. Ms. Parkhill said the NCUA had issued application-related rulemaking and was working on issuer standards. Mr. Guynn said the Federal Reserve was working on its framework and expected to release it soon. Mr. Gallagher said the OCC had published its rule for comment and would incorporate stakeholder feedback.

• Rep. Pressley asked how FedNow could help smaller institutions compete and what additional support Congress could provide. Ms. Parkhill said FedNow allowed credit unions to offer faster payment services that met member needs.

  Rep. Pressley then asked how adoption could be supported. Ms. Parkhill said providing resources and listening to institutions would help expand usage.

  Rep. Pressley then asked how the Federal Reserve was encouraging participation in FedNow. Mr. Guynn said the signup process was already accessible and that continued outreach would support adoption.

• Rep. Nunn asked whether the federal government was capable of implementing a coordinated AI strategy to address financial system risks. Mr. Guynn said the government was capable and that such coordination would help address economic and national security risks. Mr. Gallagher said the government was capable. Mr. Billingsley said he agreed. Ms. Parkhill said she agreed.

  Rep. Nunn then asked what tools the OCC was using to help smaller banks detect AI-generated fraud. Mr. Gallagher said the OCC was gathering industry feedback and working to reduce unnecessary policy barriers so institutions could test and deploy solutions.

  Rep. Nunn then asked about updating model risk guidance. Mr. Gallagher said the OCC was reviewing guidance in coordination with other agencies and was aware of evolving risks.

  Rep. Nunn then asked about detecting foreign AI threats in banking systems. Mr. Billingsley said detection could occur through examinations and monitoring, though it might not always be immediate, and he emphasized that stronger interagency coordination would improve response times.

  Rep. Nunn concluded by asking whether legislative direction would help close gaps. Mr. Guynn said it would further encourage coordination across agencies.

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