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Financial Regulators Highlight the Risk of Blockchain in Annual Review

caution-iconOn June 21, the Financial Stability Oversight Council (FSOC) released its annual report concerning the stability of the financial services industry and, for the first time, the council identifies emerging technologies—especially the increasing adoption of blockchain technology—as posing risks to the stability of the financial industry.

In particular, the FSOC, which is made up of the chiefs of 10 U.S. financial regulators and an independent expert on insurance appointed by the President, notes that technological developments in the financial industry occurring since the 2008 financial crisis pose a particular risk to the marketplace because these technologies were not contemplated by regulators when the post-2008 crisis regime was implemented. What’s more, these new technologies have the potential to disrupt the financial marketplace by allowing customers to obtain services traditionally only available through banks from nonbank financial services companies, the FOSC adds.

With regard to blockchain technology, in particular, the FSOC notes that while blockchain has the potential for improving the financial system, it nevertheless poses certain risks. For example, one risk is that the broad adoption of blockchain technology could eliminate traditional means of clearing and settling financial transactions, thereby disrupting the current financial system. In light of this potential disruption, the FSOC advises regulators to pay special attention to these new and emerging technologies.

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