12 Sep 2019
Facebook’s (FB.O) Libra cryptocurrency suffered another setback on Wednesday when Switzerland said the proposed payments system could face strict rules that typically apply to banks, on top of tough anti-money laundering laws.
The world’s largest social media network announced plans in June to launch the new currency as it expands into e-commerce but Libra has come under fire from regulators around the world who fear it could destabilize the global financial system.
The statement by Switzerland’s financial market supervisor FINMA came as the Libra Association, which is based in Geneva, said it planned to apply to become a licensed payments system in the country.
FINMA said the project would be more than just a global payments system and would therefore be subject to extra requirements, from liquidity and capital allocations for risk to the management of reserves that will back the digital tokens.
“For bank-like risks, for example, bank-like regulatory requirements would apply,” FINMA said in an initial assessment of the project based on the information it has so far.
A spokesman for Libra said getting clarity on how its new digital currency would be regulated in Switzerland was key for the project’s development and FINMA’s guidance “now define what the Libra ecosystem is, and what it is not”.
To try to avoid the volatility that plagues cryptocurrencies such as bitcoin, Libra will be backed by a reserve of assets, including bank deposits and short-term government securities, which will held by a network of custodians.
FINMA said the risks and returns associated with such a reserve must be borne entirely by the Libra Association and not the digital coin holders.
Libra aims to launch in June 2020 but the project has drawn sustained criticism from politicians and lawmakers around the world concerned about its impact on the financial system, user privacy and its potential for use in money laundering.
“The highest international anti-money laundering standards would need to be ensured throughout the entire ecosystem of the project,” FINMA said in a statement.
The Swiss authority said wider questions about tax, competition and data protection thrown up by Facebook’s plans for Libra would fall outside its remit.
By John Miller, Brenna Hughes Neghaiwi, and Tom Wilson, Reuters, 11 September 2019
Read more at Reuters
Advance your CPD minutes for this content, by signing up and using the CPD WalletFREE CPD Wallet