The Swiss financial regulator says Facebook’s Libra cryptocurrency will need a license as a payment system as a bare minimum - but would likely have to submit to even greater supervision depending on the exact way it will function.
The Libra digital payment token, which plans to launch next year, would be backed by a basket of international currencies. The fund would theoretically stabilise the value of the token, preventing its price from fluctuating as wildly as other cryptocurrencies.
The need for extra supervision depends on how the Geneva-based Libra Associationexternal link plans to manage this fund, and who would bear the risk of losses, Swiss Financial Market Supervisory Authorityexternal link (FINMA) said. It could conceivably need an additional license as a collective investment scheme, such as a fund, or as a bank.
FINMA confirmed on Wednesday that the Libra Association has asked for an initial assessment of its regulatory obligations in Switzerlandexternal link. FINMA has taken the unusual step of publishing its early thoughts given the deluge of concerns being expressed around the world, particularly in the United States.
Defining Libra’s exact regulatory obligations is difficult given the paucity of precise technical detail on how it will work. At the very least, Libra will need a license to operate as a payment system in Switzerland, FINMA notes.
“A necessary condition for being granted a licence 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 ‘stablecoin’ holders.”
Such a license would subject the digital currency to stringent cyber-risk and anti-money laundering compliance rules. On Tuesday, a senior US Treasury official visiting Switzerland raised concerns that digital currencies might be used to fund terror and launder the proceeds of crime.
FINMA said that the global scope of the Libra project meant it could not be regulated only in one country. Supervision of Libra’s governance and anti-money laundering efforts requires an “internationally coordinated approach”.
The financial regulator also noted that other supervisory authorities would have to look at Libra’s tax, business competition and data protection obligations.
In a first reaction, Dante Disparte, head of policy and communications for the Libra Association, statedexternal link:
“Since our vision for the Libra project was announced three months ago, we have maintained our commitment that technology-powered financial services innovation and strong regulatory compliance and oversight are not in competition. We are engaging in constructive dialogue with FINMA and we see a feasible pathway for an open-source blockchain network to become a regulated, low-friction, high-security payment system. This is an important step in Libra project’s evolution, and we look forward to continuing our engagement with all stakeholders over the coming months.”