Facebook questioned by Brussels over Libra risks

Brussels is questioning Facebook over potential financial risks posed by its Libra coin project as the EU prepares to overhaul regulation of digital currencies.

The European Commission has asked Facebook and the Libra Association to respond to a series of questions on financial stability, money laundering and data privacy risks that could be posed by the project. 

The commission’s questionnaire, sent last week and seen by the Financial Times, is part of a drive by Valdis Dombrovskis, the EU’s financial services commissioner, to determine how projects such as Libra should be regulated in the EU, if fresh legislation is needed, and even whether Facebook’s coin proposal should be allowed to operate in the bloc.

It comes at a time of mounting official pressure on Libra to explain to regulators how it plans to set up a digital currency that could be used by 2.4bn Facebook users.

Last month, Libra’s founders were grilled by 26 central bank officials in the first big encounter between Facebook and regulators. In August, Brussels’ antitrust authority asked the company for answers over concerns that Libra will harm consumer choice.

In the biggest blow yet to the project, PayPal — one of Libra’s founding members, said on Friday it was pulling out of Libra. One person close to PayPal told the Financial Times that the company was concerned Facebook had not done enough to address the regulatory backlash against the project, especially over money laundering concerns. 

Brussels wants Facebook to explain how the Libra project will handle money laundering and counter-terrorist financing rules and to ensure it minimises the risks of customers using the digital currency for tax evasion. The EU is also seeking to understand how Libra would manage its reserves, protect customer data and address the potential for widespread use of the digital currency to spawn threats to financial stability. 

Mr Dombrovskis, who is likely to be questioned on his digital currency strategy when he faces a European Parliament hearing on Tuesday, has said there is a “strong willingness to act at an EU level” when it comes to Libra.

The commission has been anxious to agree an EU-wide approach to Libra, given the possibility that regulatory approval in a particular jurisdiction could give the project a “passport” to operate across the bloc. 

France has said Libra cannot be allowed to operate in the EU, while the bloc’s finance ministers have expressed “strong concerns” that Libra and other digital currencies could destabilise the financial system and undermine governments and central banks.

European policymakers think that Libra may prove particularly popular in the EU, where consumers still face difficulties in making cross-border payments. 

Benoît Coeuré, of the European Central Bank, has warned that “the bar for regulatory approval will be very high” in the EU.

The remaining 27 backers of the Libra Association, including Visa, Mastercard, Spotify and Uber, are due to sign a so-called membership declaration by Monday to signal their commitment to the project.

Those in the payments sectors are wavering whether to press ahead or follow PayPal’s lead and pull out, according to several people familiar with the situation.

All members made a non-binding pledge to invest at least $10m in the project, but are yet to hand over any money. However, they are expected to nominate a board and formalise their involvement at the first official meeting in Geneva, where Libra has its headquarters, in mid-October.

Asked about the EU questionnaire, Dante Disparte, head of policy and communications for the Libra Association, said: “The Libra Association welcomes this public policy dialogue and multi-stakeholder process that will help unleash economic and social potential of digital currencies.” 

A spokesperson for the European Commission declined to comment.

Additional reporting by Hannah Murphy in San Francisco

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