Financial Firms Quit Facebook’s Cryptocurrency Project

The Facebook’s Libra cryptocurrency faces a critical test on Monday with the first general meeting of its backers, days after major payment providers pulled out of the project.

Mastercard, Visa and eBay withdrew from the Libra Association on Friday, as well as fintech start-up Stripe and payments firm Mercado Pago.

The move follows PayPal’s exit from the association earlier this month, and leaves the project  without the backing of any major payments firms.

The Libra Association said earlier this month that after the meeting it would give more details about some 1,500 “entities” it said have indicated their “enthsiastic interest” in participating.

Pressure

At the meeting in Geneva, members of the association are to review a charter and appoint a board, the Wall Street Journal reported earlier this month.

Meanwhile, regulators stepped up their pressure on the proposed cryptocurrency.

Randal Quarles, head of the global Financial Stability Board, said in a letter to G20 finance ministers that “stablecoins” such as Libra posed a “host of challenges” and that as such “possible regulatory gaps should be assessed and addressed as a matter of priority”.

Quarles said the FSB would consult on a global regulatory approach to the issue in April, with final proposals planned for July 2020, the Financial Times reported.

The FSB’s concerns centre on the potential for stablecoins – which are backed by real-world assets – to become a substitute for domestic currencies, Quarles said in the letter.

This could create challenges for financial stability, consumer and investor protection, data privacy, money laundering, extremist financing, fair competition, cyber-security and tax evasion, he said.

Facebook announced Libra in June, with plans to launch it by June of next year, but has said the launch date could be pushed back if necessary while negotiations with regulators continue.

David Marcus, Facebook’s head of the project, and other Libra executives are expected to tell the conference they are planning to press ahead with launch plans in spite of regulatory concerns.

Regulatory scrutiny

Libra’s founding 28 members initially signed non-binding letters of intent to join the project, but some former members told the FT they felt Facebook had hyped up their involvement before they had fully committed.

In the months after Libra’s launch the initial members were beset by inertia, fractures and fear of attracting regulatory attention, some told the paper.

Friday’s departures were prompted by letters to Visa, Mastercard and Stripe from two members of the Senate banking committee, informing them that Libra would mean the companies existing businesses would receive additional regulatory scrutiny, former members told the FT.

The move publicly threatened companies’ entire business models if they “so much as had a Libra node on their servers”, one person reportedly said.

The moves were reportedly further pushed forward by the news that Facebook founder Mark Zuckerberg would be testifying in Congress this month on Libra.

Of Libra’s original 28 members, large companies including Vodafone, Uber and Lyft continue to back the project, as well as non-profit, venture capital and blockchain firms, but no major financial organisations.

The project has been criticised by France, the Bank of England, US Federal Reserve chairman Jerome Powell and others.