Facebook’s Libra Seeks License from Swiss FINMA

The Libra Association— the non-profit organization behind Facebook’s Libra— has announced it is seeking to apply to become a licensed payment system under the Swiss Financial Market Supervisory Authority (FINMA).

The association announced on Wednesday that the license under FINMA can empower billions of people. In addition to that, the association has also submitted a request for an assessment of how it would classify the Libra project.

The Swiss financial regulator further noted that due to the issuance of Libra payment tokens, the services planned by the Libra project would clearly go beyond those of a pure payment system, signifying it would be subject to additional requirements.

The agency further explained that such additional requirements would relate in particular to capital allocation (for credit, market and operational risks), risk concentration and liquidity as well as the management of the Libra reserve.

On the other hand, the Libra association has explained in a statement that Switzerland provides a pathway for responsible financial services innovation harmonized with global financial norms and strong oversight.

It further added:

 “We are engaging in constructive dialogue with FINMA and we see a feasible pathway for an open-source blockchain network to become a regulated, low-friction, high-security payment system.”

Ever since Libra launched, regulators all over the world have shown concerns over Libra raising the risk of money laundering through its global cryptocurrency available to millions of users on Facebook. Just yesterday, U.S. Treasury official Sigal Mandelker reiterated that Facebook’s Libra project must without doubt meet the highest standards of regulatory compliance prior to its launch.

Most recently a group of U.S. lawmakers, led by Democratic Congresswoman Maxine Waters, met FINMA officials to discuss the Libra project. However, the meeting did not erase Waters’ concerns. In fact, Congresswoman Maxine Waters—who called for a moratorium to halt the project—recently traveled to Switzerland to examine how the Libra project would work.

Global money-laundering watchdog the Financial Action Task Force (FATF) is also said to be looking into Libra. FATF President Xiangmin Liu stated that they want to make sure that in case there are significant risks, they must be addressed and dealt with.

In response to the abundance of criticism, the Libra association has reiterated its commitment to work with regulators.

“Since our vision for the Libra project was announced three months ago, we have maintained our commitment that technology-powered financial services innovation and strong regulatory compliance and oversight are not in competition,” said Dante Disparte, Libra Association’s head of policy and communications.

Facebook’s Reputation Proves to Be a Roadblock for Libra

The focus of the hearing between Facebook’s David Marcus and the Senate on the Libra cryptocurrency was trust—or the lack thereof.

David Marcus, the head of the blockchain division at Facebook, testified before the Senate Committee on Banking, Housing, and Urban Affairs to clarify issues around Libra, the cryptocurrency Facebook revealed last month.

Libra Under Fire

Marcus’ testimony was arranged after Libra attracted national scrutiny from several divisions of the United States government. The Federal Reserve Chairman, Jerome Powell, stated that Facebook should halt development until major concerns around privacy and money laundering are addressed.

The committee has been unrelenting in criticizing Facebook for its previous scandals. Incidents such as the Russian election meddling and Cambridge Analytica dominated the hearing. Making matters worse, this week the FTC approved a $5 billion fine on Facebook for mishandling users’ data. Senators have clearly stated that Facebook is hard to trust right now.

“I don’t trust Facebook, and it’s because of the repeated violations of user privacy and repeated deceit, and I am not alone,” stressed Arizona Republican Martha McSally. “The core issue here is trust.”

Marcus tried to address the claims, noting that Facebook is not the sole member of the so-called Libra Association backing the cryptocurrency and that other members — including the likes of PayPal and Visa — would minimize the company’s influence over the network.

“Facebook is just one vote among many,” he told the Committee.

Facebook Has Trust Issues

The Senators were not convinced. Facebook’s market power, vast resources, 2 billion user base, and founding role in Libra would make it trivial for the company to heavily influence the payment system.

Unlike other hearings, those on the Committee appeared relatively knowledgeable about the potential of distributed ledger technology. Senator Thom Tillis, a Florida Republican, added to the positive sentiment towards crypto, saying the United States should take a leading role in setting cryptocurrency regulation.

However, there is still uncertainty around the securities classifications, tax treatment, and legal status of cryptocurrencies in the United States. This allows other jurisdictions such as Malta and Switzerland to be at the forefront of the cryptocurrency industry.

Nevertheless, the Senate Committee was more concerned about the trustworthiness of Facebook over the threat that Bitcoin, or any other payment network, poses to the U.S. financial system.

As Senator Brown effectively summarized:

“Why with all of your problems should we trust [Facebook] with something as important as a worldwide currency and the damage that can come from it.”