Facebook announced in June its plan to launch the new currency Libra aims in June 2020 as it expands into e-commerce. 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; and could potentially destabilize the global financial system.
Global Payment System
Swiss financial regulator FINMA confirmed that it had received a request for an assessment of how it would classify the Libra project as currently planned. The agency added that range of services projected by the Libra Association would need extra oversight.
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 currency.
“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 currently has.
A Swiss payment system is “automatically subject” to the Anti-Money Laundering Act, FINMA said.
Risk of Money Laundering
Regulators globally have been raising concerns that Libra would increase the risk of money laundering via its global cryptocurrency available to Facebook’s users. U.S. Treasury official Sigal Mandelker said Facebook’s Libra must meet the highest standards of regulatory compliance prior to any launch.
One condition for being granted a Swiss payment system license would be that the “returns and risks” related to management of the reserve “were borne entirely by the Libra Association and not – as in the case of a fund provider – by the ‘stable coin’ holders.”
“Increased clarity on a regulation pathway in Switzerland is key for the association’s development and will help inform our conversations with regulators in other markets,” Dante Disparte, the Libra Association’s head of policy and communications, said in an emailed response to Reuters questions.
“The Libra coin is simply a proxy for an instantaneous payment system that is low friction and high trust,” he said.
With Libra planned as a global project, it will require international coordination from regulators, FINMA said, especially the definition of requirements for managing the reserve and its governance, as well as to address the risk of money laundering.