Sceptical Australian regulators could kill Facebook’s cryptocurrency plans

Australia’s top financial regulators have raised the prospect they could kill Facebook’s controversial proposed digital currency.

Australian finanical regulators want to know if Facebook has a ‘plan B’.

Australia’s top financial regulators have raised the prospect they could kill Facebook’s controversial proposed digital “stable coin” currency libra and want to know if the company has a “plan B”.

At a confidential meeting with senior lawyers from Facebook and the Libra Association in late October last year, Facebook told local financial regulators its mooted cryptocurrency was “not designed to replace sovereign currencies but supplement” them, according to notes of the meeting obtained by The Australian under Freedom of Information laws.

Local regulators have turned up the heat on Facebook after it announced plans to partner with almost 30 companies to create the digital currency, which would be leveraged off its access to 2.4 billion social media users to gain a slice of the global flow of money.

As the mooted libra digital 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, which would allow it to be used as a store of value, and therefore face regulation by local watchdogs.

At the October 23 meeting the anti-money laundering regulator Austrac was told Facebook had planned to “bring the bar down responsibly” on granting access to potential users due to varying levels of confidence in identification and verification around the world.

Facebook was also questioned about its ability to conduct compliance checks and how it would exchange national currencies into the libra cryptocoin.

Facebook told the regulators it had “no monetary sovereignty aspirations” — which has been a key concern of global central banks in response to the libra proposal.

Notes on many of Facebook’s responses to the regulators’ demands were redacted due to commercial confidence, including the answer to a final question asked by the group: “Is there a plan B if it doesn’t survive the regulators”.

However, Facebook confirmed the Calibre consortium backing the project had “zero intention of sharing (customer) data” and “expected to comply with anti-money laundering and counter-terrorism financing and sanctions based on local laws”.

It told local regulators libra would be applying for a Swiss licence as a payments system operator and register with the US financial intelligence agency as a money service business.

Australia’s most powerful financial regulators recently urged the government to give them the tools to rein in controversial ­digital coins such as Facebook’s planned “stablecoin” libra amid concerns about the risks posed by a cryptocurrency aiming to usurp the Australian dollar.

At the same time, The Australian has previously revealed a briefing note prepared by the Australian Securities & Investments Commission raised concerns over consumer vulnerability to libra due to the “high penetration of Facebook-owned apps”.

The Council of Financial Regulators has delivered a raft of recommendations to Treasurer Josh Frydenberg outlining a new framework to allow financial watchdogs to control cryptocurrencies “proportionate to the risks of their activities” after the ­nation’s top regulators came together to ensure any threats posed by digital coins could be contained.

The Council of Financial Regulators, which has among its members the Australian Prudential Regulation Authority, Reserve Bank, Australian Securities and Investments Commission and Treasury, recently finalised recommendations for a simplified framework to regulate “stored value facilities”, a form of prepaid electronic cash that involves Australian currency being used to buy digital payment services.

In a submission to a senate inquiry into financial technology the Reserve Bank said it was “supportive” of efforts to ban Facebook from launching libra before all the “risks and regulatory requirements have been addressed”, while APRA has joined talks with the Switzerland-based Basel Committee, an international group of financial regulators, on how to regulate libra. ASIC has attempted to join a global watchdog working group run by the International Organisation of Securities Commissions which is examining digital currencies and stablecoins such as libra.

Locally, the Council of Financial Regulators has set up a Distributed Ledger Technology Working Group, which also includes the anti-money laundering regulator Austrac, to investigate the risks posed by libra.

At a meeting between financial regulators and Facebook in July, shortly after the libra project was announced, the company told representatives from the watchdogs they were “seeing tremendously positive comments” about how libra could be used as a remittance for Pacific islanders and its motivation for joining the libra Association were “altruistic”.

Regulators demanded to know how Facebook planned “to deal with the trust deficit”.

Facebook said libra transactions would comply with Know Your Customer requirements of anti-money laundering laws.

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

Notes from the October meeting show Facebook was to ­respond to regulators’ questions in writing, although the timing of that response was “to be advised”.

Although the libra project was initially backed by a loose alliance of companies such as Visa, Mastercard and PayPal, the ­project has slipped into disarray under the weight of scrutiny from politicians worried about how the $US550bn company handles the data of 2.4 billion Facebook users.

Late last year, PayPal left the libra alliance, followed by Visa, Mastercard and eBay.