Former CFTC Chair Calls For Facebook’s Libra Cryptocurrency To Be Regulated As A Security
Former chairman of the United States’ Commodity Futures Trading Commission (CFTC), Gary Gensler has said that he is of the view that Facebook’s Libra should be considered as a security. Gensler made the statement in his remarks to the U.S House of Representatives.
Libra Is A Security
Through his prepared remarks, Gensler made the observation that Libra is similar to a pooled investment vehicle and as such, it should be subject to the regulations of the Securities and ExchangeCommission and that the Libra Association should be required to register as an investment advisor.
The argument that Libra should be classified as security comes from the cryptocurrency acting like a stablecoin whose value is measured against a basket of currencies and government bonds. A security token will be offered to members of the Libra Association, members who are tasked with managing the development of the cryptocurrency.
Libra Can Also Be Considered A Bank
Gensler goes on to say that some of Libra’s structures are the same as the structures of banking institutions. He says that there is enough basis for considering Libra Reserve as a bank and therefore bank-like regulations can be applied to the project.
His argument stems from the fact that Libra intends to issue a form of money which can be used in a similar fashion as fiat currencies. Some of the characteristics pointed out include lending of the proceeds to banks and lending to governments as debt securities on top of the ability to make payments using the stable coin.
Due to the fact that the services offered by Libra will be similar to those offered by traditional banks, Gensler is of the opinion that Libra should then be subject to the same regulations.
He says that at the very least, restrictions should be placed on Libra Reserve’s investments and prohibitions applied to its ability to lend and act as a fractional bank.
Questions About Facebook
The concerns raised by the House of Representatives during Tuesday’s Senate Banking Committee seem to be more about Facebook engaging in this project than they are about blockchain technology and cryptocurrency. Facebook was involved in a scandal about data privacy and election meddling and this seems to be a bone of contention for regulators when it comes to Libra.
In response to Facebook executive David Marcus’ claims that Libra is of importance in making sure that the U.S does not get left behind in the growth of blockchain, Sen. Brian Schatz said that the question isn’t about why the U.S should lead it. Instead, the senator asked why Facebook, given its history over the last few years, should be allowed to lead in this industry.
The sentiments of Sen. Schatz were also shared by Sen. Chris Van Hollen who said that Libra has many differences with Bitcoin which raises many questions. Bitcoin’s volatility means it won’t be put to widespread use while Libra is designed with the intention of widespread use.
Unlike Bitcoin, Libra is being issued by a central issued claiming to have assets backing the stable coin. Van Hollen added that there would need to trust in the Libra Association due to it being a world currency.
Similar concerns to those raised by the senators were also expressed by the Secretary of the Treasury, Steve Munchin. The Secretary noted that Libra comes with regulatory challenges and that there is a need for due diligence in preventing potential financing of terrorism and money laundering activities. Munchin said that Treasury has been clear about what they expect from Facebook and other digital financial services in terms of anti-money laundering safeguards.
The Bottom Line
The announcement of Facebook’s Libra has raised a number of concerns among regulators and the government of the U.S. The project has received a lot of scrutinies and it is clear that it will have to meet rigorous regulations before it can be granted permission to function.