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Right now, Babelfish doesn't support IAM authentication; the authentication token is larger than the limit for SQL Server passwords.
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This is the answer as of May 2022, on Babelfish 1.2.0. Babelfish is adding new capabilities all the time, so be sure to check version updates: https://docs.aws.amazon.com/AmazonRDS/latest/AuroraUserGuide/babelfish-compatibility.supported-functionality-table.html