Earlier today the Libra Association announced it had requested clarification of its status and the Libra coin from Swiss regulator FINMA. Within a matter of hours, FINMA published an initial response. Libra is the stable coin project initiated by Facebook and backed by 26 major brands including Visa, Mastercard, Paypal and Vodafone.
FINMA acknowledged receipt of Libra’s request and indicated it is standard procedure. In its response, it noted the basic principle is ‘same risks, same rules’.
Perhaps the most interesting conclusion is that the returns and risks of managing Libra would need to be borne entirely by the Libra Association. FINMA stated: “and not – as in the case of a fund provider – by the ‘stable coin’ holders.”
The Swiss regulator also outlined the need for international coordination when it comes to Libra. It specified three areas needed for global cooperation as managing the reserve, governance and anti-money laundering. To date, Libra has encountered significant headwinds globally. But at least FINMA is potentially restricting the scope of the coordination.
Apart from this, FINMA stated Libra would need a payment system license from FINMA because it’s a financial market infrastructure. But the regulator also noted that the services planned by Libra were beyond a pure payment system, and hence would be subject to additional requirements. Those would relate to capital allocation (for credit, market and operational risks), risk concentration and liquidity as well as the management of the Libra reserve.
FINMA mentioned bank-like risks more than once, and hence the need for a combination of banking and infrastructure regulation.
Rules governing payment infrastructures are based on international standards, including cyber risks. Notably, Facebook has had several data leakages.
And predictably Libra would be required to comply with the highest international anti-money laundering standards.
FINMA stated that its classification was indicative, and once a license application is made, it will not comment on the submission.
Libra governmental backlash
In the U.S. Congress the Financial Services Committee has been particularly negative about Libra asking Facebook to halt. Facebook Calibra CEO David Marcus has responded in writing. Since then Marcus addressed both the House and the Senate about Libra.
Other central banks and regulators have aired their views on Libra, including the Monetary Authority of Singapore. They include central bank The People’s Bank of China, The Bank of England, the U.K. financial regulator, the Governor of the Bank of France Villeroy de Galhau, and leading Chinese economist Zhu Min who have all made statements.
In China, the head of the countries Central Bank Digital Currency initiative has even published a course about Libra.
