US regulators issue blockchain technology warning

FSOC says market participants don't know enough about distributed ledger technology and the risks it poses.

US regulators have warned that distributed ledger technology could pose “risks and uncertainties” to the financial stability of capital markets in a report released overnight.

The report from the Financial Stability Oversight Council warned that market participants “have limited experience working with distributed ledger systems” and notes that “vulnerabilities” resulting from the new technology may not become known until it is too late.

The timing of the report comes as cheerleaders for Blockchain technology gather in the Spanish capital, Madrid, for the annual FinTech gathering MoneyConf.

The report – co-authored by members of the US Treasury, Federal Reserve and Securities and Exchange Commission – cautions market participants that “innovations may also embed risks”.

It states: “Risks embedded in new products and practices may be difficult to foresee. Financial regulators will need to continue to be vigilant in monitoring new and rapidly growing financial products and business practices, even if those products and practices are relatively nascent and may not constitute a current risk to financial stability.”

Speaking in an interview, Nasdaq’s head of European listings, Adam Kostyal, said global regulators are keeping pace with new technologies at differing rates.

He explained: “Regulation has to evolve. In the UK, regulators have been very proactive but in other markets they are not. In some markets this has evolved more rapidly than others. It is difficult to regulate something that you don’t know but, as you see it evolve, you have to make sure you know the mistakes being made.”