Facebook's Libra Must Meet Strict Standards - Bank of England

Tuesday,October 15, 2019 / 01:19PM / By TheGuardian / Header Image Credit: Cnet

Digital currency must besubject to measures such as stress tests to gain approval

The Bank of England has hardened its stance on Facebook's Libra digital currency,telling the social media company it must meet its highest standards to get thegreen light for launch in Britain.

In its toughestintervention to date, the central bank's financial policy committee (FPC) saiddigital currencies such as Libra would need to reach the same high standards asthose of traditional payments.

ThreadneedleStreet said the cryptocurrency had potential to become "systemically important" to the financial system, and that all parts of the ecosystem around Libra thatwould be needed to buy, hold and exchange the internet currency must meet itsstandards.

Signalling its futuretreatment of Libra and other digital currencies that have the potential to becomesystemically important, it said the digital wallets used to hold them needed tobe as resilient as traditional bank accounts. Facebook plans to launch its owndigital wallet for holding Libra, known as Calibra.

In practice, that would meandigital wallets enabled to hold Libra hitting standards that othercryptocurrencies have so far avoided. These include being part of the UK'sfinancial services deposit protection scheme, holding capital to protectconsumers and being subjected to central bank stress tests.

In a warning to Facebook, the Bank's quarterly FPCassessment of emerging financial risks said: "If payment tokens were usedwidely to facilitate routine payments, they should have the same level ofoperational resilience and safeguarding as the use of debit cards to makepayments from current accounts."

The Bank said "end-to-end operational and financial resilience" was required across a paymentchain, in a reflection that money transfers are only as safe as the weakestlink they might pass through.

"The resilience ofthe proposed Libra system would rely on the stability of not just the coreelements of the Libra Association and Libra Reserve but also the associatedcritical activities conducted by other firms in the Libra ecosystem, such asvalidators, exchanges or wallet providers," the Bank said.

The latestintervention came after PayPal became the firstcompany to drop out of the Libra Association, the group of multinationalsbehind the digital currency, amid mounting regulatory concerns around theworld.

The Bank said "end-to-end operational and financial resilience" was required across a paymentchain, in a reflection that money transfers are only as safe as the weakestlink they might pass through.

The latestintervention came after PayPal became the firstcompany to drop out of the Libra Association, the group of multinationalsbehind the digital currency, amid mounting regulatory concerns around theworld.

The French government hassaid it would block the development of Libra in the EU, while US regulators havesuggested its financial underpinnings - which will involve pegging the value ofone Libra against a basket of currencies held in reserve - could bring theproject under the auspices of securities regulators.

Dante Disparte, the head ofpolicy and communications for the Libra Association, said it welcomed theBank's recommendations. He added: â€œWe recognise that blockchain is an emergingtechnology and that policymakers must carefully consider how its applicationsfit into their financial system policies.

"The Libra Association andits members are committed to working with applicable regulatory authorities toachieve a safe, transparent and consumer-friendly implementation of the Libraproject."