Federal regulations governing artificial intelligence (AI) are transitioning from a prolonged policy debate to an imminent compliance challenge, following a new executive order issued by the White House on December 11. This directive aims to centralize AI governance at the federal level and address the increasingly inconsistent array of state regulations that have characterized AI oversight across the United States.
The order has been analyzed by the Steptoe legal firm in a report titled “Toward A National AI Framework: The Federal Strategy To Override State Regulation.” The firm portrays the executive order as more than mere rhetoric, framing it as a comprehensive federal strategy that couples policy guidance with an enforcement framework. Notably, the initiative includes the formation of an “AI Litigation Task Force” and mandates federal agencies to assess and potentially contest state laws that conflict with national priorities.
Despite the assertive language of the executive order, Steptoe highlights the limits of executive authority, noting that it cannot unilaterally preempt state law. This limitation creates a complex landscape where federal agencies will advocate for regulatory uniformity while states are likely to defend their existing statutes, with courts playing a crucial role in determining the boundaries of preemption.
For financial services firms, the practical implications of the executive order are not confined to the establishment of new rules but signal a rapidly evolving supervisory environment that necessitates heightened governance, disclosure, and control measures. The analysis contends that the order bolsters a principles-based supervisory model while elevating expectations for precise AI-related disclosures and governance practices.
This principles-based approach tends to broaden the examination risk, as it relies on existing fiduciary duties and anti-fraud statutes to evaluate whether a firm’s AI systems and oversight processes are “reasonable” given their context. The report points to the Securities and Exchange Commission (SEC) as an early indicator of how the new regulatory landscape could unfold. The SEC Investor Advisory Committee, for instance, has recommended AI disclosure guidance “based on materiality.” This shift, coupled with the agency’s retreat from certain prescriptive measures, suggests a move towards familiar regulatory frameworks, such as fiduciary responsibilities and Regulation Best Interest, rather than strict adherence to novel AI statutes.
For banks and market intermediaries, the evolving regulatory framework implies that compliance will involve ensuring that AI models are governed comparably to other high-impact systems, which significantly affect customers, markets, and financial reporting. The SEC Division of Examinations has identified AI policies and the veracity of registrant claims about AI as priorities for fiscal 2026, signaling an uptick in scrutiny across agencies. The SEC’s AI Task Force plans to leverage AI tools to enhance efficiency and accuracy in its operations, raising the stakes for marketing claims, investor communications, and internal documentation.
The executive order’s promise of diminishing reliance on state-specific compliance regimes may be less of an immediate relief than it appears. The Steptoe analysis advises firms to reconsider the strategy of “building to the strictest state” regulations but not to abandon it entirely. Instead, it recommends distinguishing core investor-protection measures from jurisdiction-specific requirements in light of the uncertainties surrounding preemption and state law endurance. This guidance equips financial institutions with a practical roadmap as they navigate the complexities of managing AI across various business lines while state laws, federal guidelines, and legal interpretations remain in flux.
For companies engaged in AI development and deployment across diverse sectors, the message is clear: anticipate increased federal activity, accelerated policy changes, and a compliance environment that prioritizes documented governance over aspirational claims. As these dynamics unfold, stakeholders must remain vigilant in adapting to an evolving landscape marked by both opportunity and regulatory scrutiny.
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