Today the Libra Association announced it has formally applied for a payments license to the Swiss Financial Markets Supervisory Authority (FINMA). It also published a new whitepaper clarifying significant changes to its plans including supporting singe currency stablecoins, remaining as a permissioned network and initially limiting participants to designated dealers and regulated exchanges and custodians.
The blockchain and digital currency group says that the licensing procedure will have input from central banks and regulators around the world, which participate in FINMA’s regulatory supervisory college.
Seven months ago, the Libra Association requested clarification of its status and the Libra coin from Swiss regulator FINMA. The regulator published an initial response in a matter of hours which emphasized the oft-quoted regulator stance of “same risk, same rules”.
Apart from referring to itself as a ‘payments system’, Libra confirmed a number of changes to its initial plans. Originally the Libra coin was to be backed by a basket of currencies. It now says it will support single currency stablecoins which in turn will back the multi currency Libra.
Most notable evolutions are:— David Marcus (@davidmarcus) April 16, 2020
a) the creation of single currency stablecoins, e.g. ≋USD, ≋EUR, ≋GBP, in addition to Libra Coin (≋LBR), which will now be a Move smart contract “stitching” together fixed nominal weights of underlying stablecoins. 3/8
Futhermore, the whitepaper explains support for central bank digital currencies. “Our hope is that as central banks develop central bank digital currencies (CBDCs), these CBDCs could be directly integrated with the Libra network, removing the need for Libra Networks to manage the associated Reserves, thus reducing credit and custody risk. As an example, if a central bank develops a digital representation of the US dollar, euro, or British pound, the Association could replace the applicable single-currency stablecoin with the CBDC.”
When it first unveiled in June last year, it was a public permissioned blockchain with a plan to transition to a permissionless platform when the technology was sufficiently performant. It now intends to remain permissioned.
And thirdly, it says it is implementing a compliance and risk management framework including strong anti money laundering (AML), counter terrorism finance (CTF) standards as well as combatting illicit activities.
As part of this process in the first instance it will limit participants to designated dealers and regulated custodians and wallets. It plans to expand the group to “certified” wallets and exchanges as well as unhosted wallets for financial inclusion. But first it has to come up with a compliance framework.
The updated Libra whitepaper states: “Our objective is for the Libra payment system to integrate smoothly with local monetary and macroprudential policies and complement existing currencies by enabling new functionality, drastically reducing costs, and fostering financial inclusion.”
Since Facebook announced Libra, there has been a barrage of pushback from regulators and central banks around the world. That’s driven by concerns that a Libra currency could challenge sovereign currencies, worries about privacy given Facebook’s track record, as well the potential for it to dominate cross border payments with Facebook’s 2.7 billion audience.
Those concerns triggered the departure of some of the larger Libra members such as Visa, Mastercard, eBay and Paypal.
We recently published an article regarding the Libra antitrust concerns in which we also highlighted the unusual situation where the governments are potentially regulating their own competition.