US Government Watchdog: Regulations Are Hobbling DLT Innovation

The complexity of U.S. financial regulations is holding back distributed ledger technology (DLT) startups, the U.S. Government Accountability Office (GAO) says.

The GAO's finding, in a report published March 22, is part of a broader analysis of fintech that examines the benefits, risks and regulations associated with the sector. The office, often referred to as a "congressional watchdog,” also offers recommendations in the report to improve regulation of the space.

DLT firms, among others, told the office that the lack of regulatory clarity in the U.S. "can result in some firms delaying the launch of innovative products and services – or not launching them in the United States" at all because they're worried about "regulatory interpretation."

The 132-page report goes on to say:

"The complex U.S. financial regulatory structure can complicate fintech firms' ability to identify the laws with which they must comply and clarify the regulatory status of their activities."

The GAO also identifies "fragmented state licensing and reporting requirements" as often being "prohibitively expensive" for DLT firms.

In the discussion of cryptocurrencies, the report identifies as risks the irreversibility of transactions, potential theft, and fraudulent token sales.

As for DLT, the report states that the technology could cut costs for consumers by reducing the operational expenses associated with payments and shrinking settlement times for currency, derivatives and securities transactions. It goes on to list cybersecurity and a potential 51 percent attack as concerns.

This is not the first time the GAO has studied fintech in general or blockchain and crypto specifically.

In April 2017, the office released areport that explored blockchain technology and outlined contemporaneous industry developments. At the time, it indicated it was unsure if new regulations were needed for blockchain technology and DLT.

Likewise, the GAO published a report in January of 2017 that suggested the IRS should take action to inform taxpayers of potential liability from investing their individual retirement accounts (IRAs) in blockchain-based assets.

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