As Libra regulatory storm gathers, a Mastercard exec preaches calm

Libra has only been public for a few days, but it has been enough time for regulators around the world to savage the project and schedule hearings.

“It’s expected and normal for regulators to say they don’t quite understand this yet. They don’t have a framework yet,” said Jorn Lambert, executive vice president of digital solutions for Mastercard, one of the participants in Project Libra, a cryptocurrency from Facebook and dozens of investors scheduled to launch in 2020. “Our objectives are aligned. We want consumer protections. We want to avoid money laundering and to counter terrorism.”

Daniel Acker/Bloomberg

In the U.S. the Senate Banking Committee has scheduled a hearing for July 16 to examine Libra. Sen. Mike Crapo, R-Idaho, the Senate Banking Committee chair, and Sen. Sherrod Brown, D-Ohio, the ranking member of the committee, sent a letter to Facebook CEO Mark Zuckerberg in May to request information on the project’s privacy and consumer protections.

In the House, Financial Services Committee Chairwoman Maxine Waters, D-Calif., said the project should be halted until Congress can investigate.

“We are keen to work with regulators to make sure we are meeting their intent and are working in their boundaries,” Lambert said.

European officials have also criticized the project. French Finance Minister Bruno Le Maire said Libra cannot become a “sovereign currency” and members of Germany’s Parliament warned Facebook could become a “shadow bank.” European Data Protection Supervisor Giovanni Buttarelli said the proposed launch will require scrutiny from data protection authorities.

Regulators often pressure Facebook over privacy, most recently over its ties to the 2016 U.S. presidential election hacks and an API bug. Facebook is also getting pressure from the private sector. For example, challenger bank Current contends Calibra’s logo is practically the same as its own.

Privacy and the concern about laundering and criminal financing are intersecting for Libra, whose backers will likely have to demonstrate how it’s protecting privacy while ensuring Libra’s rails aren’t used for crime, according to Patrick Burke, a partner at Phillips Nizer and former deputy superintendent at the New York State Department of Financial Services, which administered New York’s BitLicense, an early attempt to regulate bitcoin and other cryptocurrency.

The project "may be required to have a certain amount of information about wallet holders of the coin. That will need to be maintained somewhere where it can be provided to law enforcement,” Burke said. “There will need to be methods to assure it’s not laundering of violating sanctions laws.”

Facebook’s launch announcement included language that seemed to anticipate regulatory questions, such as stating Calibra, the subsidiary Facebook has set up to build financial services for Libra, will not share account information or financial data with Facebook or any other third party without consent. The launch announcement also stressed Libra’s focus on financial inclusion and security.

“We will have to do the right work to be clear about what the currency does versus what role Facebook has,” Lambert said.

Libra may also run into existing international cryptocurrency politics, which differ widely from one nation to another. India and China, for example, have taken a hard line on cryptocurrency. And Mastercard and Visa face existing regulatory pressure in India, which requires local data storage for outside companies; and China, which regularly changes requirements for outside payment companies hoping to establish a domestic market.

Facebook did not return a request for comment and Mastercard did not directly address a Reuters report that it may “not launch” if the project receives too much pushback.

Mastercard plans to work with regulators to explain how Libra will work and benefit local consumers, a process that Lambert said will take some work.

“The world is a big place. We don’t expect everyone to embrace this in the same way,” Lambert said. “If the regulators feel their country is not ready for this now or won’t be ready, so be it.”

Lambert also addressed the role of cryptocurrency for payments. Cryptocurrency has been used more as an investment asset than a payment instrument, as most retail deployments involve conversion to traditional currency before the payment is made. Other cryptocurrency payment deployments have been used for niche merchants such as cannabis dispensaries.

“Consumers have to get their heads around the fact that it’s not a dollar or a euro,” Lambert said. "That is a challenge. We will have to work around that and it will come back to realizing the problems that [Libra] is solving. The key for us is making sure it answers actual consumer needs. What is it for? What problems does it solve? How does it further financial inclusion.”

The structure of Libra, which is pegged to a group of currencies to hedge against volatility, will be helpful in addressing merchant and consumer concerns, Lambert said.

“It’s a stablecoin and we like that. It’s also governed by an independent association and not a single company,” Lambert said. “People have been reluctant to use certain cryptocurrencies, but not stablecoins. People need something that’s predictable to use for payments and Libra will address that.”

Among other Libra participants that replied to query requests, Spotify’s PR office said it was not making executives available for an interview. In an email, Alex Norstrom, the company's chief premium business officer, said Libra is “an opportunity to better reach Spotify’s total addressable market, eliminate friction and enable payments in mass scale.”

In an emailed statement, PayPal’s PR office said the company is “pleased to join other leading technology and financial services organizations to form Libra, with the goal of exploring a new, global digital currency, built on blockchain technology.”