Fintech feels the shutdown pain.

The promise of fintech is to be nimble, flexible and agile, transforming a traditional, highly regulated industry. However, the federal government shutdown is putting the equivalent of shackles around fintech’s ankles. And while the shutdown may have been temporarily halted on Friday -- though it could resume again in a couple of weeks if a permanent deal isn’t reached -- it has already hindered fintech innovation, according to Chris Brummer, a professor at Georgetown Law. In an analysis earlier this month in Roll Coll, he says the shutdown’s influence on fintech is “more expansive than expected.”

It’s an ironic twist: Federal agencies often seen as a drag on digital innovation are now recognized as essential to it. Policy development for the industry had been on hold, for example, because the SEC staff is furloughed. Start-up tech firms in blockchain and cryptocurrency were not able to file to make securities offerings. Online lenders couldn’t get SEC permission to repackage loans and sell them to investors in the public market. Surveillance and enforcement have slowed to a crawl.

Some banking areas, such as the FDIC and Federal Reserve, had been functioning normally, while state agencies are also unaffected. Still, fintech executives and entrepreneurs are surely gnashing their teeth in frustration. For an industry betting on an ongoing boom, this prolonged pause comes at an inopportune time. The entire U.S. fintech industry’s reputation is on the line, warns Brummer. “It’s worth wondering just how much damage the dysfunction is ultimately wrecking the reputation of the U.S. as an attractive place to launch and do fintech business,” he says.

Fintech firms will surely hope that this week’s temporary deal to reopen the government will turn into a permanent one.

This article was published as part of Weekly Briefing No. 158