The Libra Association likely has a lot more hurdles ahead according to one expert. (Photo by Chesnot/Getty Images)
The Libra Association, the group behind Facebooks Libra digital asset, publicized its intentions and actions to obtain certification from Switzerlands financial regulating body, FINMA, last week on September 11. On the same day, FINMA published its view on stablecoins (digital assets pegged to currencies), while also acknowledging the Libra Associations efforts for approval. The Libra Association and its digital asset are clearly deep in the woods of uncertainty in terms of regulation, according to Forrester Research vice president and principal analyst Martha Bennett.
The key take-away from the guidance issued by FINMA is confirmation that the Libra Association really has a steep hill to climb, Bennett said to me in an email.
Based in Geneva Switzerland, the non-profit Libra Association, formed of 28 sizable companies, will be in charge of the "Libra Reserve," the multiple financial assets and products that will back the Libra digital asset, Libras whitepaper stated. The whitepaper also included plans to increase the number of companies in the Libra Association to 100.
Since Facebook published Libras whitepaper earlier this year on June 18, the project has faced significant regulatory resistance, starting with government representative Maxime Waters calling for a halt on the endeavor, made public the same day the whitepaper saw release, according to a CNBC report.
The Libra Association published a press release on September 11, detailing its recent request with the Swiss Financial Market Supervisory Authority FINMA. The Libra Association has submitted a request for a ruling to clarify the regulatory status of the Libra Association and the Libra Coin and intends to file an application for a license as a payment system, the press release detailed.
Also on September 11, FINMA published a set of guidelines concerning regulation of stablecoins, also noting it received a request from the Geneva-based Libra Association for an assessment of its Libra project under Swiss supervisory law.
Bennett referenced FINMAs published guidelines, drawing a few conclusions. FINMA has made it clear that a) all applicable regulations regarding KYC and AML would have to be observed (this was already obvious), and b) a payment system license from FINMA may not be enough. FINAMA particularly noted the latter in its guidelines, stating, "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."
FINMAs guidance also included specific terminology that might complicate Libras regulatory journey, Bennett explained. The use of the phrase bank-like risks also provides a hint that Libra - depending on how the token is structured and administered, and how the fund is managed - could end up being regulated like a bank. This is something Libra (and Facebook) would want to avoid, she said.
A stablecoin is cryptocurrency and blockchain industry jargon for a digital coin or token backed by a currency, seeing value pegged to said underlying currency. In Facebooks case, the Libra can be classified as a stablecoin of sorts, although, the FINMA guidelines also make it clear that calling something a stablecoin makes no difference, Bennett said. [E]ach and every construct will be assessed and judged on its own merits, she added.
Facebooks Libra Had A Weak Spot In Its Technology
According to Bennett, it is important to keep in mind that the technology developed by Facebook is still early-stage, as shown in the discovery of a vulnerability in the new scripting language (Move), which Facebook/Calibra developers [have] been working on for the Libra blockchain, Bennett said. It was quite a serious vulnerability, and it's of course been patched. But it serves as a useful reminder that writing bug-free code is difficult; the stakes are of course much higher when moving into uncharted territory, with a lot [of] value at stake.
France Doesnt Want The Libra
A member of the finance department in France also spoke out against the Libra at a Paris Organization for Economic Co-operation and Development (OECD) conference on September 11, a CNBC report said. French Finance Minister Bruno Le Maire said Thursday Facebooks proposed cryptocurrency libra would put the sovereignty of governments at risk, CNBC reported. In these conditions, we cannot authorize the development of [L]ibra on European soil, Le Maire said, as reported by CNBC.
The French [f]inance [m]inister also said at the same event that Facebook had apparently not responded to any of the concerns voiced by any of the European regulators and government representatives, Bennett said. To operate within the EU, Facebook would need to obtain a license in at least one of the EU countries, she added. So far, no application appears to have been made.
A breaking development just one day later revealed France and Germany officially banning the Libra asset, a September 13 Reuters brief noted. [N]o private entity can claim monetary power, which is inherent to the sovereignty of nations, a joint statement from France and Germany said, according to Reuters coverage.
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