The contours of regulatory classification for Libra, Facebook’s cryptocurrency and blockchain, are becoming clear, at least, in Switzerland.
In a guidance note for stablecoin regulation, the Swiss financial regulatory authority FINMA recommended an “indicative classification” of payment system license for Libra. The license is subject to the AML act and requires companies to account for additional risks, such as “bank-like risks.”
The guidance also stated that the scope of requirements for Libra would surpass those for a pure payment system. “Due to the issuance of Libra payment tokens, the services planned by the Libra project would clearly go beyond those of a pure payment system and therefore be subject to such additional requirements,” the guidance notes. These requirements could take the form of additional capital allocation, risk concentration, liquidity, and management of Libra Reserves.
The agency also said the classification could change as more information about the project emerges. The Libra Association had earlier asked for an assessment from the supervisory authority. The association confirmed that it had applied for a payment systems license after the Swiss agency released its guidance.
“Switzerland offers a pathway for responsible financial services innovation harmonised with global financial norms and strong oversight. 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,” the Libra Association stated.
A Win for Libra?
The Libra Association, a collection of 27 entities from diverse industries tasked with governance of the cryptocurrency and blockchain, is headquartered in Switzerland. As such, the country’s stance regarding the project is being keenly observed by regulators worldwide.
Ever since it was announced, Libra has come under intense scrutiny and criticism from governments. Apart from their concerns relating to the issuance by a private entity, lawmakers are also flummoxed by the project’s operational scope and design. Most recently, U.S. Rep. Maxine Waters, who is also chair of the House Financial Services Committee, traveled there to meet her counterparts and evaluate their approach to regulating Libra. But she left the country with her concerns about “allowing a large tech company to create a privately controlled, alternative global currency” intact.
Securing a license to operate in Switzerland could be a major win because it would translate to clearing hurdles in a global hub for finance. It would also indicate a place for the cryptocurrency within the existing regulatory system. For the most part, lawmakers have been confused by the global nature and intricacies of Libra. Previously, experts have said that the association was using language to describe its project in a “smart and discriminate way “to avoid regulation.