Despite outcry, Congress unlikely to block Facebook's crypto plan
WASHINGTON — Lawmakers from both sides of the aisle raised serious questions about Facebook's cryptocurrency project at hearings this week, but many at the same time have voiced objection to congressional action aimed at stopping the launch of Libra.
Even Democrats, who in general have been more critical of the company's plans, appear split on legislation to block any of the tech firms from delving further into the financial services business.
“I don’t think we need to stop them,” said Sen. Jon Tester, D-Mont., in an interview with American Banker. “I just think that we need to make sure that they’re doing everything right to protect consumers’ privacy and their money. And I think that’s what’s really critically important. I think that the cryptocurrency is going to move forward. We need to make sure that it’s done and done right. Facebook has assured us in the hearings … that they were going to do it right.”
Ahead of the Libra hearings, House Financial Services Committee Chairwoman Maxine Waters, D-Calif., circulated draft legislation to keep large technology companies from entering the financial services world and developing their own currencies.
The proposal would prohibit large technology firms with more than $25 billion in annual global revenue from establishing and operating a digital asset that is intended to be used as a “medium of exchange, unit of account, store of value, or any other similar function."
At the House hearing Wednesday, Waters said her draft "would prevent large platform utilities like Facebook from becoming financial institutions and block them from creating their own currencies."
That bill would likely meet widespread opposition from Republicans, who warned that efforts to stop Facebook from launching Libra would stifle innovation.
"Washington must go beyond the hype and ensure that it is not the place where innovation goes to die," said Rep. Patrick McHenry, R-N.C., the House panel's top Republican. "Just because we may not fully understanding the technology proposal does not mean we should immediately call for its prohibition, especially when that proposal is just that, a proposal."
But some Democrats also say legislation stopping tech firms' financial services aims would be inappropriate.
“I think that’s a bridge too far,” Rep. Bill Foster, D-Ill., said in an interview Wednesday. “We are in a situation where the giant banks all have tentative plans to effectively turn themselves into tech companies. The tech companies are rapidly moving into things we have traditionally thought of as banking. So that there are like these pair of goliaths facing off each other across a chasm and we have to make sure that the American public is not crushed in the ensuing fight.”
To be sure, nearly all lawmakers on the House Financial Services and Senate Banking panels were critical of Facebook in their questioning of David Marcus, head of the company's Calibra digital wallet. Citing previous scandals at Facebook, they focused on issues such as data security, privacy, anti-money-laundering compliance and a host of other regulatory concerns.
“Facebook has shown time after time after time that it’s undermined and betrayed the public trust. … I can’t imagine there’s anything that would make very many of us comfortable thinking that Facebook had that kind of impact on families’ paychecks,” Sherrod Brown, D-Ohio, ranking member of the Senate Banking Committee, told reporters Tuesday.
Brown said legislation to block Facebook from pursuing Libra would be in order “if they are arrogant enough to just blast ahead on this.”
But Rep. Jim Himes, D-Conn., told American Banker that while he is not necessarily a supporter of Facebook’s Libra project, he isn’t ready to back legislation to keep big tech firms out of financial services.
“I have profound misgivings and concerns about Libra,” Himes said Wednesday. “But I’m also not quite ready to jump on a fairly reflexive effort. … Again, I’m not necessarily a supporter of Libra, but I think innovation is really important. I think we need to have a long and robust conversation, so as of today, I am not a supporter of the legislation.”
Aside from the split between lawmakers on whether Facebook should move forward with Libra at all, it’s unclear to Congress how Libra would need to be regulated. Both parties appeared skeptical of Facebook’s proposed approach.
Facebook is proposing for Libra’s governing association, which includes representatives from the payments and technology industries such as Mastercard, PayPal and eBay, to be regulated by the Swiss Financial Markets Supervisory Authority. Libra would also register with the Financial Crimes Enforcement Network as a money-services business.
Those plans drew questions from lawmakers over concerns that U.S. regulations would be put on the back burner if Libra is regulated in Switzerland. The influence of the individual member firms on the Libra association also gave lawmakers pause.
Federal Reserve Chairman Jerome Powell warned lawmakers earlier this month that the Fed does “not have oversight over Facebook."
"The privacy rules that we apply to banks, we have no authority to apply them to Facebook or to Libra," Powell told members of the Senate Banking Committee.
That led Banking Committee Chairman Mike Crapo, R-Idaho, to ask whether Congress needs to create a new regulator.
"I think that is exactly the question we need to be focused on, one of the many questions we need to be focused on," Powell said in response. "It isn't obvious at all from our current regulatory system that we have in place what we need to provide oversight over this."
Sen. Doug Jones, D-Ala., told American Banker Thursday that establishing a financial regulatory framework for tech firms needs to be “seriously looked at.”
But he added he likely would not support legislation to block major tech companies from operating like banks.
“Not just as a broad brush, I wouldn’t,” Jones said. “But I think we have to look at everything on an individual basis. This is ... an emerging area and I think that we have to do a really good job of trying to figure out where this is going.”
Foster said that he wouldn’t create another regulator in the cryptocurrency field, but that it might be appropriate for banking regulators to step in.
“We don’t need another regulator in this,” he said. “We should simply task probably one of the market regulators" — the Commodity Futures Trading Commission or the Securities and Exchange Commission — "with regulating this space. To the extent that banking functions get taken on by Libra … I think you have to bring in the banking regulators for all the safety and soundness.”