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Libra, the ambitious crypto project spearheaded by Facebook, is facing mounting scrutiny from international regulators that are demanding more detail on the fledgling project, reports The Guardian.
- Randal Quarles, chair of the Financial Stability Board (FSB), which coordinates policy for G20 nations, said the social media giant's plan could force regulators to take a closer look at crypto instruments, per Reuters. The comments, the first by a senior US regulator, point to how the country might approach Libra. However, Facebook's plans aren't expected to be on the agenda during the G20 summit this week.
- The UK's Financial Conduct Authority (FCA), which has already held talks with Facebook over Libra, has warned the firm will need to provide more detail on its plans, per the Financial Times. Andrew Bailey, head of the FCA, confirmed the regulator is working with the UK's Treasury and central bank to keep tabs on Libra, and warned that Facebook "will not walk through authorization" it needs from the watchdog to operate.
Here's what it means: Facebook's caught global regulators off guard - and that's likely to delay liftoff for Libra.
- The limited adoption of cryptos has made regulators hesitant to police the space.This lack of adoption partly stems from the fact that retail consumers' interest in the nascent asset class has nose-dived since early 2018, while regulatory uncertainty has limited institutional investment in the space. As a result, regulators have by and large concluded that crypto doesn't pose a risk to global financial stability. However, Facebook's vast resources and user base, in addition to the size of the backers it's amassed for Libra, means cryptos' widespread adoption has become substantially more possible - forcing authorities to understand and develop frameworks to police them.
- The scarce regulatory framework is likely to hamper Libra's rollout.Facebook has already engaged in discussions with regulators. However, given its global ambitions, the firm will likely face scrutiny from a slew of authorities, each claiming oversight over the project. Overcoming this tricky regulatory terrain is likely to be the main hurdle to Libra's success, according to S&P Global Ratings cited by Reuters.
The bigger picture: Facebook may be stealing attention - but regulators' focus on Libra is likely a stepping stone in their efforts to figure out how to handle big tech firms' entry into finance.
- Despite regulators' uneven approach to crypto policing, they've begun making headway on coordinating policing. For instance, the Financial Action Task Force (FATF), which outlines recommendations for combating money laundering and terrorism financing, released an updated guidance on regulating crypto firms earlier this week. Importantly, the G20 nations have reaffirmed intentions to align with these new standards. As such, we anticipate a more coordinated global approach to regulating companies operating in the crypto space to emerge sooner rather than later - not least as they look to deal with Facebook's ambitions.
- The bigger challenge for regulators, however, goes beyond crypto and requires them to figure out how to ensure the likes of Facebook don't threaten global financial stability. Big tech firms typically not only have huge user bases but also matching deep pockets, opening the possibility for them to upend the industry entirely. These firms' inexorable foray into financial services makes this possibility a distinct reality, amping up the pressure on regulators globally to figure out how to respond. To this end, the Bank of International Settlements (BIS) published a report earlier this week, highlighting the need to ensure these players' move into the industry limits financial stability risks. Crucially for regulators, though, as illustrated by Libra, developing these frameworks in a timely manner is key - or they'll find themselves caught off guard by these fast-moving tech firms.
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