GENEVA — The Libra Association said on Wednesday it will apply for a payments license in Switzerland so that Facebook’s proposed cryptocurrency can be regulated by the Swiss Financial Market Supervisory Authority.
The new nonprofit organization set up by Facebook in Geneva hopes to have FINMA oversee its new payment system and has submitted a request for a ruling to clarify the regulatory status both of the Libra Association and the Libra coin, according to a statement touting the proposed “global l0w-friction high-security payment system” as a means of empowering billions of people.
“The choice of Switzerland as the home for the newly established Libra Association,” it said, “which when fully developed will have a diverse group of member organizations spanning technology, financial services, social impact organizations and venture capital, among others, harnesses Switzerland’s role as a nucleus for international organizations.”
But in an indication of just how much concern the Facebook cryptocurrency project has sparked among international financial and banking circles, the Swiss financial regulator not only confirmed it had received the Libra Association’s request but also, and unusually, released what it called “an initial indication” of how it would use relevant Swiss regulations to examine the Libra Association’s request.
“A necessary condition for being granted a license as a payment system would be that the returns and risks associated with the management of the reserve were borne entirely by the Libra Association and not – as in the case of a fund provider – by the ‘stable coin’ holders,” FINMA said in a statement.
But while such requests for a legal assessment or ruling are standard practice, particularly for innovative projects, FINMA said, the scope of the project has implications far beyond Swiss borders. So-called stable coins hold foreign currency reserves.
“The planned international scope of the project requires an internationally coordinated approach,” the Swiss financial regulator said. “In particular, the definition of requirements for managing the reserve, and the governance around it, as well as for combating money laundering should be developed in international coordination.”
Regulators and politicians around the world, notably including a delegation of U.S. Congress members that recently visited Switzerland, have expressed worries and misgivings about the project’s impacts on the global monetary system. Last week, the Swiss National Bank warned that the price stability of cryptocurrencies could be at risk if they are pegged to foreign currencies.
We are excited to announce a step in Libra’s evolution: pursuing a payment system license under the Swiss Financial Market Supervisory Authority (FINMA) lead supervision, offering a pathway for responsible innovation and global financial oversight. https://t.co/4Bz4gLGn9p pic.twitter.com/YlGTrrEqbl
— Libra (@Libra_) September 11, 2019
More supervision likely
FINMA said it has seen a steady increase since last year in the number of projects using stable coins, which are more fixed than normal cryptocurrencies because their values are pegged to assets such as gold or the U.S. dollar. It said Facebook’s Libra cryptocurrency, which plans to launch next year, would likely have to submit to even greater supervision, depending on how it functions.
Since stable coins can vary greatly, FINMA said, “the requirements under supervisory law may differ depending on which assets (e.g. currencies, commodities, real estate or securities) the ‘stable coin’ is backed by and the legal rights of its holders. Money laundering, securities trading, banking, fund management and financial infrastructure regulation can all be of relevance.”
Last month, Swiss companies Sygnum and SEBA became the first two “crypto banks” to gain banking and dealer licenses from FINMA, which also issued rules on how it applies Swiss anti-money laundering rules to financial services providers in the area of blockchain technology. FINMA said it recognizes the innovative potential of new technologies for the financial industry but cannot allow blockchain-based business models to circumvent the existing regulatory framework.
The Libra Association said it envisioned its cryptocurrency as an open-source financial services network that can “level the playing field” for people living on the “margins.” At the same time, it said, fintech entrepreneurs, companies and others will be able to use it to develop new financial solutions on what it promised will be an interoperable, secure and compliant payment network.
“These solutions,” the association said, “are envisaged to address issues such as those associated with costly cross-border remittances, micro-payments and other transactions that, once addressed, can help enable billions of people to step onto the first rung of the ladder of economic mobility.”