The Facebook Libra Association, a new cryptocurrency payments initiative of Facebook, lost several high profile members in recent days. After initially agreeing to participate, payments providers Visa, MasterCard, and Stripe all announced their withdrawal from the initiative.
The timing comes just days before the first Libra Association meeting, scheduled for October 14th in Switzerland. The removal of these companies means no American payment processor is currently planning on joining the association. That is considered a major blow for Facebook, which seeks to make the Libra currency a global payments force.
US Senate Threatens Companies With Increased Regulatory Oversight
The change of heart for these American companies comes on the heels of a letter by US Senators Brian Schatz and Sherrod Brown warning them of increased regulatory scrutiny if they participate. In the letter, the Senators express concern over Libras’ potential facilitation of criminal activity, fraud, and other destabilizing effects on the global economy:
“Even though Facebook is the driving force behind Libra and offers the largest user base for the new crypto-currency, the company has not provided a clear plan for how it will prevent Lira from facilitating criminal and terrorist financing, destabilizing the global financial system, interfering with monetary policy, or exposing consumers to risk currently limited to accredited investors,” the letter said.
In addition, the Senators’ letter also warns the company that they will be held responsible for compliance with regulations while also threatening them with increased regulatory scrutiny across the board:
“Facebook appears to want the benefits of engaging in financial activities without the responsibility of being regulated as a financial services company,” the letter said. “Facebook is attempting to accomplish that objective by shifting the risks and the need to design new compliance regimes on to regulated members of the Libra Association like your companies. If you take this on, you can expect a high level of crutiny from regulators not only on Libra-related payment activities, but on all payment activities.”
The letter comes on the heels of prior comments from US Treasury Secretary Steve Mnuchin calling the Libra project a potential facilitator of criminal activity and an overall “threat” to the financial system.
Speaking to The Verge, a Visa spokesperson said that the reasons for the company’s pullout was due to the need to be sure they could meet regulatory expectations. Stripe also took a similar line, reaffirming their interest in the project but holding back on joining before more regulatory clarity becomes available.
In response to the pullouts, Libra chief David Marcus took to Twitter to declare his continued optimism about the Libra project. Additionally, he stated that the presence of increased scrutiny is proof that the project will make a big impact on the payments ecosystem in the future.
I would caution against reading the fate of Libra into this update. Of course, it’s not great news in the short term, but in a way it’s liberating. Stay tuned for more very soon. Change of this magnitude is hard. You know you’re on to something when so much pressure builds up.
— David Marcus (@davidmarcus) October 11, 2019