German politicians and regulators are failing the blockchain sector because they have so far failed to introduce a suitable legal framework, according to a report presented in Germany’s parliament this week.

A proposal document drafted by the Free Democratic Party (FDP) called “Creating a Sustainable Framework for Distributed Ledger Technology in the Financial Market” was laid in front of a Bundestag Finance Committee public hearing this week, stressing the need for a certain framework in order to encourage the country’s nascent blockchain sector.

The proposal highlighted cryptocurrencies and initial coin offerings (ICOs) as viable tools for small to medium sized businesses, describing them as “flexible financing alternative for small and medium-sized enterprises.”

However, the report said the current lack of clarity around regulation in Germany was holding back the emerging cryptocurrency sector.

It noted: “The potential of blockchain technology can only be realized if there is legal certainty for its application and a workable legal framework for its use. The Federal Financial Supervisory Authority (BaFin) and the Federal Ministry of Finance have so far failed to develop competencies and make the necessary legal adjustments.”

The proposals come amid claims from senior figures in the party that Germany was already suffering from a brain drain, with blockchain talent leaving the country due to the stifling legislative picture under current rules.

The report said that there was broad support for legal changes that would be supportive of blockchain technology, but criticized lawmakers for so far failing to come together to draft this type of legislative response.

According to experts in German law, there is no strict need for cryptocurrency or blockchain-specific rules, with the industry at present covered by a patchwork of regulation intended for other use cases.

However, the FDP paper argues that laws specifically tailored to the sector would help encourage growth and innovation, rather than blocking or otherwise hindering development activity.

The report comes at a time when an increasing number of countries are considering their legislative response to blockchain technology, with a number of jurisdictions already bringing in measures specific to cryptocurrency and distributed ledger technology to encourage growth in the sector.

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