International financial officials team up on Facebook currency

The corporate watchdog has been considering advice from international regulators about Facebook’s proposed currency.

Facebook in June announced plans to partner with almost 30 companies to create a digital currency. Picture: AFP

The corporate watchdog has been considering confidential advice from international financial regulators about Facebook’s proposed cryptocurrency, Libra, as it battles concerns about “potential gaps” in the law that could leave it unable to police the mooted digital coin.

The Australian Securities & Investments Commission is also attempting to join a global watchdog working group examining digital currencies and “stablecoins” such as Libra, run by the International Organisation of Securities Commissions (IOSCO).

Facebook in June announced plans to partner with almost 30 companies to create a digital currency that would be leveraged off its access to 2.4 billion social media users in order to gain a slice of the global flow of money.

According to documents­ ­applied for by The Australian under Freedom of Information laws, senior ASIC commissioners immediately debated concerns the proposed Libra project would be able to skirt around any current regulatory controls,

This week The Australian reported that a group of eight local regulators planned to force Facebook to divulge details about its proposed global cryptocurrency after the social media giant failed to reassure officials over the threat the project posed to ­national security, banking, consumers and investors.

Shortly after news broke of Facebook’s foray into digital ­financial services, ASIC’s senior members debated “possible grounds upon which Libra may fall under ASIC’s regulatory responsibility” and considered the “potential gaps in the regulatory framework” that could leave the watchdog unable to rein in the cryptocurrency, according to an ASIC lawyer who refused The Australian access to documents detailing the conversations.

Emails containing these discussions were withheld from The Australian as the “information discussing the limits of ASIC’s regulatory powers would diminish the effectiveness of ASIC’s regulatory regime and allow parties to design products which fall outside the scope of ASIC’s regulatory remit”.

“The release of financial products that are specifically designed to avoid regulatory capture by ASIC would substantially undermine the operations of ASIC and its ability to act as an effective regulator of financial products,” the ASIC lawyer said.

On Monday, IOSCO raised the prospect that existing securities laws could apply to “stablecoin” digital currency initiatives, such as Facebook’s Libra project.

IOSCO, the global body made up of financial regulators from across the world, met in Spain last week to discuss the potential risks posed by “stablecoin initiatives with a potential global reach”, including threats to “consumer protection, market integrity, trans­parency, conflicts of interest and financial crime, as well as potential systemic risk”.

As the Libra currency would be tied to a “stable” asset such as a basket of bank deposits, government bonds and sovereign currencies such as the US dollar and the euro, it would be likely to fit the profile of a global stablecoin.

“Our analysis has shown that so-called ‘stablecoins’ can include features that are typical of regulated securities,” IOSCO chairman Ashley Alder said. “This means IOSCO principles and standards may apply to stablecoins depending on how they are structured, including those related to disclosure, registration, reporting and liability for sponsors and distributors.”

A paper drawn up for ASIC’s “emerging threat and harm committee” noted its internal crypto-asset working group was teaming up with “local and international regulators and regulatory bodies” to understand how Libra would work. “The IOSCO-Fintech Network will be looking at Libra and is creating a working group on stablecoins, which ASIC has expressed interest in joining,” notes prepared for an ASIC committee show.

An ASIC lawyer told The Australian documents outlining the regulator’s response to Libra were prevented from release as they contained information provided to it “by an international organisation on a confidential basis”.

“This information has not otherwise been made public and I am satisfied that the release of this information would damage international relationships that are under­pinned by the ability to co-operate and provide the assistance needed in the knowledge and understanding that information communicated in confidence will be treated as such by each party to the communication.”