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                    Issue Summary
    Financial technology (i.e., fintech) refers to the use of technology and innovation to provide financial products and services. Advances in technology and the widespread use of the internet and mobile devices have helped fuel the growth in fintech products and services. However, fintech offers both benefits and challenges to consumers. Federal regulators also face challenges in overseeing fintech and protecting consumers.

For instance:

Fintech can help connect lenders and borrowers online. Some fintech lenders use alternative data to help determine borrowers' creditworthiness. For example, lenders may supplement traditional data (such as credit scores) with information about a borrower's college degree. Using alternative data could make loans available to more people but could also have unintended effects. Fintech lenders may not know how to use the data and still comply with fair lending laws. Additionally, fintech lenders lack clarity on regulatory requirements for certain types of fintech products.
	Blockchain combines several technologies to provide a tamper-resistant record of transactions between parties without a central authority, such as a bank. Although virtual currency (also known as “cryptocurrency”) is the best-known use, blockchain has other financial uses. For example, it could be used to facilitate lending and borrowing through decentralized finance or to automatically transfer digital assets on the blockchain if certain conditions are met. However, data privacy, energy consumption, and regulatory uncertainty are key concerns. Additionally, recent price crashes, bankruptcies, and fraud involving blockchain-related products and services, such as crypto assets, raised concerns about gaps in regulation and the risks consumers face.**How blockchain, a form of distributed ledger technology, acts as a means of payment for cryptocurrencies.**

Image
              How blockchain, a form of distributed ledger technology, acts as a means of payment for cryptocurrencies.**Examples of Virtual Currency Transactions that Can Produce Taxable Capital Gains**

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              Virtual currency transactions that can produce taxable capital gains

Financial regulators and law enforcement agencies may find it difficult to detect money laundering and other crimes involving virtual currencies. For example, drug and human traffickers are increasingly using peer-to-peer mobile payment services to transfer funds between users, and kiosks—in convenience stores and elsewhere—to convert cash and virtual currencies. Such transactions can be difficult for law enforcement agencies to track. Additionally, the lack of an intermediary makes it difficult to protect consumers from the loss or theft of virtual currencies. There are also a number of issues with ensuring tax compliance with virtual currencies.
	**Insurtech**—i.e., the innovative use of technology by insurance companies—offers the potential to improve customer experiences and lower insurer costs. Some insurers have begun to use artificial intelligence to explore ways to reduce costs by automating information gathering and risk assessment. However, this could make it more challenging to ensure that factors like race are not being used in the models that determine premiums. Additionally, how insurers collect and use consumer data raises questions about data accuracy, privacy, and ownership. Further, some insurtech firms sell coverage in nontraditional insurance markets that receive less regulatory oversight of their policies and rates.
	**Digital wealth management platforms******use algorithms based on consumers' data and risk preferences to provide digital services, including investment and financial advice, directly to consumers. These platforms may offer consumers greater access to such services and at a lower cost, but they may not capture a customer’s full finances and goals. They also may not be able to answer clarifying questions like a traditional wealth manager.
	Bank regulators directly address the risks posed to their regulated institutions from third-party technology service providers, but the National Credit Union Administration (NCUA) lacks this authority. Cyber risks affecting a depository institution can arise from weaknesses in the security practices of third parties that process information or provide other IT services to the institution. Bank regulators routinely conduct examinations of service providers' information security. Authorizing NCUA to routinely conduct such examinations could help it better ensure that the service providers for credit unions also follow sound information security practices.
	The extent to which fintech firms are subject to federal oversight varies. For example, federal regulators may review some activities of fintech lenders or payment firms as part of overseeing risks arising from these firms' partnerships with banks. In other cases, state regulators primarily oversee fintech firms, such as insurtech firms, but federal regulators can take enforcement actions. This varied U.S. regulatory structure poses challenges to fintech firms. To help, regulators could act collaboratively to better ensure that consumers avoid financial harm and continue to benefit from these services.

  Recent Reports
          Blockchain in Finance: Legislative and Regulatory Actions Are Needed to Ensure Comprehensive Oversight of Crypto AssetsGAO-23-105346
      
	Published:  Jun 22, 2023


	Publicly Released: Jul 24, 2023
                        Financial Technology: Products Have Benefits and Risks to Underserved Consumers, and Regulatory Clarity Is NeededGAO-23-105536
      
	Published:  Mar 08, 2023


	Publicly Released: Mar 08, 2023
                        Blockchain: Emerging Technology Offers Benefits for Some Applications but Faces ChallengesGAO-22-104625
      
	Published:  Mar 23, 2022


	Publicly Released: Mar 23, 2022
                        Trafficking: Use of Online Marketplaces and Virtual Currencies in Drug and Human TraffickingGAO-22-105101
      
	Published:  Feb 14, 2022


	Publicly Released: Feb 14, 2022
                        Mortgage Lending: Use of Alternative Data Is Limited but Has Potential BenefitsGAO-22-104380
      
	Published:  Nov 16, 2021


	Publicly Released: Dec 16, 2021
                        Artificial Intelligence: An Accountability Framework for Federal Agencies and Other EntitiesGAO-21-519SP
      
	Published:  Jun 30, 2021


	Publicly Released: Jun 30, 2021
                        Virtual Currencies: Additional Information Reporting and Clarified Guidance Could Improve Tax ComplianceGAO-20-188
      
	Published:  Feb 12, 2020


	Publicly Released: Feb 12, 2020
                        Science & Tech Spotlight: Blockchain & Distributed Ledger TechnologiesGAO-19-704SP
      
	Published:  Sep 16, 2019


	Publicly Released: Sep 16, 2019
                        Financial Technology: Agencies Should Provide Clarification on Lenders' Use of Alternative DataGAO-19-694T
      
	Published:  Jul 25, 2019


	Publicly Released: Jul 25, 2019
                        Insurance Markets: Benefits and Challenges Presented by Innovative Uses of TechnologyGAO-19-423
      
	Published:  Jun 07, 2019


	Publicly Released: Jun 07, 2019
                        Financial Technology: Agencies Should Provide Clarification on Lenders' Use of Alternative Data [Reissued with revisions on Mar. 12, 2019.]GAO-19-111
      
	Published:  Dec 19, 2018


	Publicly Released: Dec 19, 2018
                        Financial Technology: Additional Steps by Regulators Could Better Protect Consumers and Aid Regulatory OversightGAO-18-254
      
	Published:  Mar 22, 2018


	Publicly Released: Mar 22, 2018
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      Blockchain in Finance
      
        
        Blockchain in Finance
          Monday, July 24, 2023
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      Federal Government Challenges with Virtual Currencies
    Thursday, June 26, 2014
      
            Transcript
          Big Bite: Financial Technology
          Additional FinTech Regulatory Oversight
    Thursday, March 22, 2018
      
            Transcript
Illustration showing two hands connecting, but there is digital coding stippling the design.
          Blog Post
              Blockchain: Financial and Non-Financial Uses and Challenges
            Thursday, March 24, 2022
      
            Markets—for example the housing market or those for commercial goods—currently rely on institutions...
          Photo of two people exchanging $100 bills
          Blog Post
              Risks and Benefits of Fintech Lending
            Wednesday, January 23, 2019
      
            Financial technology (fintech) refers to the use of technology and innovation to provide financial...
          Blog Image
          Blog Post
              Is The Regulatory Environment Stifling Financial Innovation?
            Thursday, August 9, 2018
      
            Financial regulatory oversight in the United States is complex and fragmented, with different rules...
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