Libra leaves regulators scrambling
By Alex Sampson and Alexander Liddington-Cox
Facebook’s digital currency project Libra has left regulators across the globe scrambling to work out how they will deal with such a revolutionary financial platform.
The Libra Association today wrote that it would "work with the global community in the coming months and continue to partner with policymakers worldwide to further the mission". Policymakers could have as little as six months to come to grips with the new cryptocurrency, which aims to have 100 members on board in time for its target launch in the first half of 2020.
“Treasuries and central banks right now are going to be having these conversations. This is being launched in 2020, they have six months to figure this out. I hope they’re having some meetings today,” said Chris Berg, senior research fellow at the RMIT Blockchain Innovation Hub.
The Libra cryptocurrency, announced by a consortium including Facebook, Mastercard, Visa, PayPal, eBay, Uber, Spotify and Vodafone overnight, will be powered by blockchain. Alongside the cryptocurrency will be a real-time payments offering via a new digital wallet using Facebook's Messenger and WhatsApp platforms, called Calibra.
FinTech Australia general manager Rebecca Schot-Guppy welcomed the move, adding the lobby group expects Facebook and Calibra will be locked in talks with regulators “over the next few months”.
In Australia, it's still unclear how each of the regulators will oversee the Calibra wallet. A spokesperson for Austrac said while the regulator did not regulate currencies of any type, it did regulate businesses that operated in Australia and facilitated the exchange of money regardless of the type of currency being exchanged. It already monitors 250 digital currency exchanges.
Neither the RBA nor ASIC would comment in detail, saying it was very early days and they would respond in time.
A spokesperson for the RBA’s New Payments Platform, which stands to lose from a disruptive real-time payments competitor, said messaging and chat platforms were already moving into this space alongside other third-party apps such as PayPal, Square Cash and Venmo.
“When it comes to the movement of money in real-time, safety and security are of the uppermost importance. NPP Australia has rules and regulations in place that ensure that the highest levels of safety and data security are adhered to by prudentially regulated organisations," the spokesperson said.
“Fraud detection and prevention capabilities are critical, as well as abilities to meet stringent know your customer (KYC) and anti-money laundering (AML) and compliance requirements.”
The Australian Prudential Regulatory Authority declined to comment on questions from Australian Banking Daily about whether it has ever met with Facebook or how it was monitoring this news from the social media giant.
However, APRA and the other financial regulators were also conducting a review of the regulatory framework for purchased payment facilities. This covered products such as digital wallets.
And APRA chief Wayne Byres gave a speech in in September where he said it wasn’t out of the question for a transactional payment service in Australian dollars to emerge that had no physical presence in Australia.
“This will clearly test regulatory statutes and frameworks, which are built on the concept of a single authorised legal entity with a domestic physical presence, undertaking the bulk of critical services in-house,” Byres said. “But if, like Uber, consumers flock to the service, can the law stand in the way?"
He also said APRA’s statutory mandate to promote stability in the financial system did not extend to protecting incumbent players when “better, safer and more efficient” rivals emerge.
Asked by Australian Banking Daily whether Libra was being treated by Treasury as an urgent issue, Assistant Minister for Financial Services Jane Hume’s office said the government was “always looking at ways to ensure competition and innovation, not only when it comes to financial technology, but the broader Australian economy”.
US-based bank founder and innovator Brett King said the banks would hit back at the encroachment on their space and regulators would try to block what they could.
He said there were rumours circulating in the US that Congress would tomorrow issue a cease and desist notice to the group.
“I do think that in the US they’re going to face heavy regulatory scrutiny, even though they’ve done a lot of preparation with US regulators,” King said.
He said the US was behind the UK, Hong Kong, Singapore and China in its restrictive approach to allowing fintechs and new payment systems to operate in its market.
He said Australia was less conservative, evidenced by the provision of licenses to fintechs this year.
“Australia is more likely to look for a solution within that regulatory framework than to say shut it down because they don’t fit the typical categorisation of a payments company,” King said.
RMIT's Chris Berg said innovations such as Libra would bring an end to the 20th century model where governments had a monopoly over money.
“The consequences of that are going to have to be worked out, but to start with the RBA and other central banks who now don’t have as much control over monetary policy. And ultimately by the Treasury, which is going to have less control over some of the fiscal policy,” Berg said.
“There’s absolutely going to be a lot of resistance around the world."
Berg and King agreed that Libra could end up like Uber, where a critical mass of users forced the hand of governments around the world to accept a disruptive technology consumers adopted en masse and refused to stop using.
Warnings
Digital identity and data protection specialist Stephen Wilson from Lockstep Group was more cynical. He said Facebook users should remember that despite the Libra system promising anonymity, Facebook had a bad track record with privacy.
“Zuckerberg’s testimony before the US congress was only six months ago. The idea that they’ve turned around their privacy culture in less than 12 months is laughable,” Wilson said.
“The promise that things stay anonymous, that’s a promise that just cannot be kept in the modern age.
“It also has to be said that anonymity is a really crude weapon for privacy, a really crude tool for privacy. If you look at really strong regimes like the GDPR and the Australian Privacy Act it’s not about anonymity at all, it’s all about restraint and respect,” Wilson said.
ASIC’s online MoneySmart portal warns that digital wallets (such as Calibra) are not legal tender and may not be accepted in many places and says the anonymous nature of digital currencies has made them very attractive to criminals.
It warns they have fewer safeguards and because they are often not regulated there may be no one to file a complaint with if things go awry.
The ATO warns that everybody involved in acquiring or disposing of cryptocurrency needs to keep records and can be taxed in relation to their transactions.
Wilson suspected Facebook’s motive was driven by a desire to collect information about non-Facebook users, and determine what people actually ‘like’.
“Facebook moving into spending is probably all about Facebook trying to gain more insights about how you spend your money, because what you spend your money on is a much better indicator of what you really like, than what you say you like,” Wilson said.
“Facebook is very clever at surveillance capitalism for its non members. If Facebook sees one end of a transaction then they’re also going to see the other end, so they’re going to get metadata about all Libra movements amongst members, and I think that’s probably going to be quite cunning.”