Global finance regulators have their work cut out to keep up with Facebook’s new crypto idea
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As a platform with over 2 billion users, Facebook is no stranger to regulatory concerns — particularly when it comes to data privacy.
But the launch of Facebook’s Libra cryptocurrency last week marked the social media giant’s first major step into financial services.
Now another regulatory battle looms, this time with finance industry watchdogs — both domestic and global — who have already expressed concern about what the move means for the sector.
To be sure, it’s still early days for Facebook’s crypto concept, the value of which will be derived from a basket of currencies (not just the US dollar).
It’s also a joint project involving 28 founding members, including the big global payments platforms Visa and Mastercard.
Shortly after the Libra launch last week, the US House Financial Services Committee requested that Facebook cease working on the project until further hearings are held.
And over the weekend, the Bank for International Settlements released an extract from an upcoming report — “Big tech in finance: opportunities and risks”.
The report touted some possible benefits, such as increased access to financial services for regions that don’t currently have it.
Facebook said one of the catalysts for its Libra project was to find a payment solution for 1.7 billion of the world’s population who don’t currently have a bank account.
But the report also highlighted potential risks, specifically in the form of “market power and misuse of data” (sound familiar?)
Specifically, it highlighted the huge data sets held by the tech giants could be leveraged into uncompetitive finance practices, such as algorithmic calculations for the highest loan rate a person will pay based on their financial circumstances.
More broadly, the BIS pointed to the regulatory challenges that loom on the horizon. As tech companies push into finance, they will also become subject to global regulatory oversight that was previously just the domain of banks.
“Big techs’ entry presents new and complex trade-offs between financial stability, competition and data protection,” the BIS said.
The concerns of BIS — which is often described as the “bank for central banks” because of the intermediary role it plays in global finance — have already been echoed by the central bankers it serves.
Both Jerome Powell and Mark Carney — chairmen of the US Federal Reserve and Bank of England respectively — have gone on the record to say they’re open to the concept of crypto payment methods as long as they’re initiated with the appropriate level of regulatory oversight.
However, it will be easier said than done, as the BIS highlighted that regulatory measures across finance, competition and data privacy “aren’t always compatible”.
“To prevent those differences from leading to conflicting actions, policymakers not only need a new compass but also need to find the right balance of public policy tools,” the BIS said.