When you collect as many friends, users, and enemies as Facebook has, political scrutiny is bound to target even the most innovative initiatives. A plan by the social media giant to enter the world of virtual currency is attracting predictable skepticism and confrontation throughout Washington D.C.
In June, Facebook announced it was entering the cryptocurrency space with a global payments network called Calibra, a digital wallet for Libra, a global currency powered by blockchain technology. The wallet will be available in Messenger, WhatsApp, and as a standalone app.
The latest voice added to the chorus of critics regarding the plan is Treasury Secretary Steven Mnuchin. He held an impromptu press conference at the White House on Monday afternoon to elaborate on his concerns, suggesting that Libra, like other crypto-currencies, might prove to be a “national security issue” and a boon to money launderers and “terrorist financiers.”
Money transmitters that broker in virtual currency, as Facebook aims to, need to ensure they are in compliance with established regulatory regimes, Mnuchin stressed. These include anti-money laundering prevention efforts, countering the financing of terrorism, and Bank Secrecy Act demands, including the filing of Suspicious Activity Reports (SARs). Money transmitters must also register with the Treasury Department’s Financial Crimes Enforcement Network.
“The rules governing money service providers apply to physical and electronic transactions alike,” Mnuchin added. “As money service businesses, cryptocurrency money transmitters are subject to compliance examinations, just like every other U.S. bank.” FinCEN will hold any entity that processes transactions in Bitcoin, Libra, or any other cryptocurrency to its highest standards, he pledged.
Oversight is a global concern and responsibility, Mnuchin said. He recently established the Financial Stability Oversight Council’s Working Group on digital assets. Last month, led by the U.S., the Financial Action Task Force, the global standards center for AML/CFT, adopted comprehensive measures on how countries must regulate and supervise activities and providers in the space.
“Like a toddler who has gotten his hands on a book of matches, Facebook has burned down the house over and over and called every arson a learning experience.”
Sen. Sherrod Brown (D-Ohio)
“Given the international nature of crypto-currencies, we are also going to great lengths to ensure that effective regulation does not stop here at the U.S. border,” Mnuchin said. “The U.S. welcomes responsible innovation, including new technologies that may improve the efficiency of the financial system and expand access to financial services. That being said, with respect to Facebook, Libra, and other developments in crypto-currencies, our overriding goal is to maintain the integrity of our financial system and protect it from abuse. Whether they are banks or nonbanks, they are under the same regulatory environment for finance, and we will hold them accountable. They’re going to have to convince us of very high standards before they have access to the U.S. financial system.”
Facebook welcomes Libra oversight
David Marcus, who heads Facebook’s Calibra initiative, testified at a hearing convened by the Senate Banking Committee on Tuesday and attempted to quell concerns.
“We want to create more access to better, cheaper, and open financial services—no matter who you are, where you live, what you do, or how much you have,” Marcus said. “We recognize that the road to reaching that goal will be long, and it will not be achieved in isolation. We will continue to discuss how best to achieve that goal with businesses, nonprofit and multilateral organizations, and academic institutions from around the world, as well as with policymakers, central banks, and regulators. We recognize the authority of financial regulators and support their oversight of this project.”
“I expect that this will be the broadest, most extensive, and most careful pre-launch oversight by regulators and central banks in FinTech’s history,” he claimed. “We know we need to take the time to get this right. Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”
Libra is a payment tool, not an investment, Marcus stressed.
“People will not buy it to hold like they would a stock or a bond, expecting it to pay income or increase in value,” he explained. “Unlike existing stablecoins—digital currencies designed to minimize volatility by being ‘pegged’ to a single asset—Libra will not have a fixed value in any single real-world currency. Instead, it will be fully backed on a one-to-one basis through the Libra Reserve, which will hold a basket of currencies in safe assets such as cash bank deposits and highly liquid, short-term government securities. These currencies will include the U.S. dollar, the British pound, the Euro, and the Japanese Yen.”
The Libra Association expects that it will be licensed, regulated, and subject to supervisory oversight, he added. Because the Association is headquartered in Geneva, it will be supervised by the Swiss Financial Markets Supervisory Authority. The Association also intends to register with FinCEN as a money services business.
Sen. Sherrod Brown (D-Ohio) admitted to having a hard time separating the plan from Facebook’s past mistakes.
“Facebook might not intend to be dangerous, but surely they don’t respect the power of the technologies they are playing with,” he said. “Like a toddler who has gotten his hands on a book of matches, Facebook has burned down the house over and over and called every arson a learning experience. Facebook has two competing missions: make the world more open and connected and make a lot of money. As it attempts to serve both these missions, they wreak havoc on the rest of us.”
Libra the tipping point for national data privacy legislation?
If nothing more, Facebook’s Libra initiative could ultimately further the cause of national consumer data collection legislation that Congress has debated for months. U.S. Senator Mike Crapo (R-Idaho), chairman of Senate Banking Committee, made that connection.
“Facebook has massive reach and influence within society with over 2 billion active monthly users and access to vast amounts of personal information. … We have held hearings on data privacy—including as it pertains to the European Union’s General Data Protection Regulation, data brokers, and the Fair Credit Reporting Act,” Crapo said. “Given the significant amount of user information already held by the largest social media platforms and the prospect of gaining even more financial information, Congress needs to act to give individuals real control over their data.”
“We need to establish similar obligations for data collectors, brokers, and users and implement an enforcement system to ensure the collection process is not abused and that data is appropriately protected,” he added. “Individuals are the rightful owners of their data. They should be granted a certain set of privacy rights and the ability to protect those rights through informed consent, including full disclosure of the data that is being gathered and how it is being used. Regulations should be clear and understandable for both collectors and consumers and should not punish those who opt out of collection practices. Individuals should also have the ability to review their data, correct inaccuracies, and have ample opportunity to opt out of it being shared or sold for marketing and other purposes. … The Libra announcement has heighted the need for policymakers and regulators to establish clear rules of the road.”