All Blockchain-Based Financial Products Face Challenges, Cautions GAO Report

All blockchain-based financial products face challenges, a report from the Government Accountability Office released today cautioned.

“These include risks for users and to the broader financial system due to a current lack of consumer protections, and the ability to use the technology to facilitate illegal activity,” the study warned.

Speaking to the risks in consumer protection the report pointed out federal deposit insurance may not cover losses to cryptocurrency balances, and consumers may not be aware of associated risks if cryptocurrency exchanges go out of business.

Additionally, the study said funds can be stolen through fraudulent token sales, using fake business plans, which criminals have used to defraud consumers of billions of dollars in cryptocurrency.

The stability of the financial system could be put at risk, the study noted, citing the International Organization of Securities Commission’s (IOSCO) identification of potential market integrity risks of cryptoasset trading platforms as one of its top priorities.

IOSCO has said the risks include where a trading platform give preferential treatment to some users offer advice to customers related to an asset in which the trading platform may have an interest.

Other groups have warned, as well, cryptocurrencies could pose dangers to financial stability if they become a more significant part of financial markets.

The GAO study went on to point out block chain financial products can pose challenges for law enforcement agencies and regulators from drug trafficking to money laundering to financing terrorism.

On the regulatory side, the report said it is unclear the extent to which various U.S. jurisdictions recognize smart contracts as legally binding contracts and who would be responsible should disputes arise.

Looking at the opportunities for improvement, the study said U.S. oversight clarity could help keep U.S.-based blockchain firms from moving to other countries, referring to regulatory sandboxes as one possibility.

Also, the study pointed to coordination among regulators could promote safety and soundness, consumer protection, and aid in combating illicit activity in blockchain-related commerce.

Source: Forbes