Facebook won’t launch crypto service until regulators satisfied, exec says
WASHINGTON — Facebook will wait to launch its proposed cryptocurrency until the social media giant works with regulators and Congress to sort out concerns they have about the Libra project, according to a senior executive's testimony for a hearing scheduled Tuesday.
The planned cryptocurrency has sparked loud concerns from policymakers since Facebook announced its plans June 18. But David Marcus, head of the Facebook digital wallet Calibra, will try to quell those worries during two visits to Capitol Hill this week. Lawmakers have highlighted the digital currency's potential effects on data privacy, anti-money-laundering efforts and monetary policy.
“I expect that this will be the broadest, most extensive, and most careful pre-launch oversight by regulators and central banks in FinTech’s history,” Marcus said in prepared testimony released Monday by the Senate Banking Committee. “We know we need to take the time to get this right. And I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”
He will appear before the Senate committee on Tuesday and the House Financial Services Committee on Wednesday.
The Libra hearings come as lawmakers have pointed to Libra as a possible threat to consumer data privacy and security. In testimony to Congress last week, Federal Reserve Chairman Jerome Powell also cast doubt on Facebook's proposed 12-month timeline for launching Libra.
Marcus will outline how Facebook expects Libra will be supervised by regulators and will tout the digital asset as a mechanism that can “make real progress toward building a more inclusive financial infrastructure.” According to the testimony, Libra will be supervised by the Swiss Financial Markets Supervisory Authority and will register as a money-services business with the Financial Crimes Enforcement Network.
He will tell lawmakers that Calibra will not share consumers’ personal information with members of Libra’s governing association, which includes representatives from the payments and technology industries including Mastercard, PayPal and eBay. He wrote that information collected by members of the association will not be shared with Calibra.
He added that customers' financial data will not be used for advertising targeting by Facebook.
“Except in limited circumstances, such as preventing fraud or criminal activity and complying with the law, Calibra will not share customers’ account information or financial data with Facebook unless people agree to permit such sharing,” Marcus wrote. “Calibra customer account information and financial data will not be used to improve ad targeting on the Facebook, Inc. family of products.”
Rather than being pegged to a single asset, Libra will be backed on a one-to-one basis through a Libra reserve, which will hold a basket of currencies such as the U.S. dollar, the British pound and the euro in safe assets such as cash bank deposits and highly liquid, short-term government securities.
Marcus said the approach “will minimize exposure to fluctuations from a single region, providing further stability for people around the world who could rely on Libra for their daily financial needs.” He said the currencies in the Libra reserve will be subjected to their respective government's monetary policy.
He said Facebook is committed to having a strong regime to prevent money laundering and other financial crimes.
“The Libra Association is similarly committed to supporting efforts by regulators, central banks, and lawmakers to ensure that Libra contributes to the fight against money laundering, terrorism financing, and more,” Marcus wrote.
Still, Marcus’ testimony will likely face pushback from lawmakers.
House Financial Services Committee Chairwoman Maxine Waters, D-Calif., is floating legislation to bar big tech companies like Facebook from operating like banks, and has raised concerns that recent data privacy scandals at the company make it a poor avenue for creating a new financial network. Scrutiny of Facebook's privacy efforts also intensified after reports Friday of a $5 billion settlement between the company and the Federal Trade Commission over the Cambridge Analytica scandal.
Sen. Sherrod Brown, D-Ohio, the ranking member of the Senate Banking Committee, warned at a hearing last week that big tech companies like Facebook “have gotten carried away with their own power” and are attempting to skirt the government by creating their own currencies and payment systems.
Isaac Boltansky, director of policy research at Compass Point Research & Trading, said in a note Monday that the hearings are an opportunity for lawmakers to vent criticism of big tech overall.
“Lawmakers will use the Libra hearings to express their frustration with Big Tech and we expect a cacophonous thrashing of Facebook,” Boltansky said. “Lawmakers will focus on privacy issues, given Facebook's checkered past in that area, as well as on systemic risk and anti-money-laundering.”