Switzerland’s financial regulator has indicated that Facebook’s cryptocurrency project Libra will be required to meet additional requirements besides getting a payment system license prior to starting operations.
In a press release, the Swiss Financial Market Supervisory Authority (FINMA) stated that the various services planned by Facebook’s cryptocurrency initiative had necessitated extra requirements being imposed:
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 and therefore be subject to such additional requirements.
Additional Regulatory Requirements
According to FINMA, the additional requirements would relate specifically to liquidity, risk concentration and capital allocation.
The Swiss financial regulator has also indicated that the management of the Libra reserve is another factor necessitating the need for Facebook to meet additional requirements with regards to its cryptocurrency initiative.
While launching the Libra white paper three months ago, Facebook indicated that the reserve would be held by a network of custodians who would be distributed geographically. These custodians will be expected to possess investment-grade credit rating.
Additionally, Facebook indicated that the actual assets used to back the Libra coin would be a basket of low-volatility assets such as bank deposits and government securities.
What shape will these additional Libra requirements take?
Per FINMA, the additional regulatory requirements that Facebook will have to meet will be similar to what other players in the financial markets sector have to adhere to.
For instance, bank-like risks that the crypto project will be exposed to such as a large number of users withdrawing their Libra coins simultaneously will have to be mitigated by the application of bank-like regulatory requirements. This suggests that Facebook could be mandated to seek a banking license, an idea that even U.S. President Donald Trump has raised in the past.
….Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National…
— Donald J. Trump (@realDonaldTrump) July 12, 2019
Additionally, FINMA also said that the Libra project’s international scope will require a globally coordinated approach. This is expected to increase the chances of the cryptocurrency project facing long delays before it becomes operational.
Switzerland under pressure from the U.S. over Libra cryptocurrency
This comes at a time when the United States is pressuring Switzerland to make sure its cryptocurrency regulations are not prone to abuse. Facebook has chosen the Central European country known for its progressiveness towards fintech to serve as the hub for Libra. According to the Wall Street Journal, Swiss and U.S. officials held a discussion in Switzerland earlier this week where the main topic was the hot country’s cryptocurrency regulations.
The officials included the U.S. undersecretary of the Treasury for terrorism and financial intelligence, Sigal Mandelker, who emphasized the need to ensure that Swiss regulations are robust enough to keep off bad actors. Mandelker was hopeful the pressure being placed on Switzerland would bear fruit just like has happened with Central European country’s banking secrecy laws where financial transparency has now been embraced.
Last modified (UTC): September 11, 2019 2:02 PM