Libra ‘makes existing payments redundant’: FCA

Facebook’s Libra cryptocurrency could lead to financial exploitation and make key payments institutions redundant, according to the Financial Conduct Authority’s executive director of strategy and competition.

Speaking at the P20 Global Payments Conference in London yesterday, Christopher Woolard said that the planned new digital payment system could pose a risk to an already huge money laundering black market.

Woolard suggested that these problems would only be exacerbated by the fiat currency and made it clear that the regulator only supports companies which innovate, collaborate and share data – all factors crucial to reducing fraud in the financial sector.

Woolard pointed to the second Payment Services Directive (PSD2) and Open Banking Application Programming Interfaces (APIs) as existing routes to regulatory approval.

In May this year, the social media giant said it would launch Libra in 2020, but political and regulatory concerns on both sides of the Atlantic have led executives to postpone plans until the authorities were satisfied.

Facebook has developed the Calibra digital wallet, which will enable its two billion users across the Facebook, Instagram and WhatsApp platforms to store its cryptocurrency, use it pay for online goods and send payments.

It has attempted to reassure regulators by explaining that Libra would be overseen by the Libra Association’s independent board featuring 28 technology and payments firms - including Mastercard, PayPal and Uber - to ensure a stable roll-out and maintain high security standards.

This week however, the Financial Times reported that PayPal is on the verge of quitting the project, amid concerns about the lack of work done by Facebook to address regulators' concerns over issues such as money laundering. The company was the only one of Libra's 28 backers not to attend a Thursday meeting in Washington to discuss how to deal with hostility to the project.

This followed the Wall Street Journal reporting that Visa and Mastercard were considering their involvement in the project over similar worries about the regulatory and political response.

David Marcus, the current Facebook and former PayPal executive who is leading Libra, responded on Twitter: “Change of this magnitude is hard and requires courage – it will be a long journey. For Libra to succeed it needs committed members, and while I have no knowledge of specific organisations’ plans to not step up, commitment to the mission is more important than anything else.”

In August, the European Commission’s competition watchdog said it was weighing up a competition probe into Libra, while last month the Libra Association pursued a license as a payment system in Switzerland.

At a conference at the University of Cambridge in July, Woolard addressed Libra, stating: “Historically, this may have been a sector that has lived by the mantra of ‘move fast and break things’, but the issues raised here require deep thought and detail.”

He added that Libra’s “size and scale will pose questions for society and government more generally about what is acceptable and desirable in this space”.

Bruce Lowthers, P20 chairman, commented: “Financial fraud is a significant problem that will become more acute as cashless payments gain further momentum globally – the industry must respond with a strategic globally unified approach.”

P20 executive director Duncan Sandys added: “Cashless payments are growing globally and a systemic attack on payments infrastructure would have immediate, devastating and far-reaching consequences for governments, businesses and the public.

“The industry has a responsibility to collaborate and work hand in hand with government and regulators to develop and maintain an industry wide response, protocol and plan.”

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