NASAA Warns Against Federal Moratorium on State AI Regulation: Implications for Investor Protection

NASAA Warns Against Federal Moratorium on State AI Regulation: Implications for Investor Protection

The North American Securities Administrators Association (NASAA) has issued a pointed warning to Congress, urging lawmakers to reconsider a proposal that would prevent states from enforcing laws or regulations governing artificial intelligence (AI) for the next decade. In a formal letter to Congressional leadership, NASAA expressed serious concern over the inclusion of this moratorium in the 2025 budget reconciliation package.

What’s at Stake

At the heart of NASAA’s warning is a provision tying broadband infrastructure grants to a state's agreement to refrain from enforcing any AI-related laws or regulations for ten years. The language, which appears in both House and Senate versions of the legislation, would prohibit state and local governments from regulating AI models, systems, or automated decision-making tools that are part of interstate commerce—effectively sidelining state regulatory authority for a decade.While limited exceptions exist, NASAA stresses that these carve-outs do little to address the core concern: investor vulnerability.

1. AI-Powered Scams on the Rise

NASAA underscores that weakening state oversight in the midst of accelerating AI adoption exposes retail investors to a heightened risk of fraud. AI-enabled scams, especially in online investment spaces, are growing in scale and sophistication. Without active state-level enforcement, many of these deceptive schemes may go unchecked—undermining years of coordinated efforts by state regulators to bolster public awareness and investor protection.

2. Eroding State Innovation and Oversight

A sweeping moratorium would also restrict states from experimenting with forward-thinking regulatory frameworks tailored to local needs. This is particularly concerning in financial services, where technological innovation moves quickly and can outpace federal policy responses. NASAA believes state-level insights are essential to informed federal policymaking and adaptive regulatory strategies.

RIA Compliance Concepts’ Take

This federal attempt to override state-level authority strikes at the core of decentralized investor protection efforts. The financial advisory ecosystem—particularly smaller firms and independent advisors—relies heavily on state regulators to identify risks and act quickly to prevent harm. Stripping that authority for a decade, especially amid transformative shifts in AI use, would significantly blunt the responsiveness of the regulatory landscape.We echo NASAA’s call for Congressional leaders to reconsider this provision. Investor protection is not a one-size-fits-all responsibility—state regulators must remain empowered to act decisively as new threats emerge.