Facebook’s proposed Libra cryptocurrency is already under scrutiny by the United States government. This is mostly because of the potential disruptive effect if has in the global economy.
However, it seems that Switzerland is now joining in. This time, it is because of the proposed payment system that Libra will use. The Swiss government is aiming to use the strict rules it uses on banks to properly regulate Libra.
The Swiss Financial Market Supervisory Authority (FINMA) will have jurisdiction over the payment system that Libra will use to allow for international transactions since it is based out of Switzerland. This is why Libra has applied for a license from the regulator.
According to FINMA, the payment system is more than just for global payments. This is why the regulator is requiring additional requirements before it gets authorisation. The additional requirements are mainly liquidity and capital allocations for risk. There will also be a need for Libra to prove that it can manage a reserve that will form the backing for the digital tokens that it issues.
Another reason for the stricter rules is that the payment system will act like a bank for its many potential users. This means that FINMA has to hold Libra to the same regulatory level as banks. A spokesman for Libra said that it would follow FINMA’s rulings, saying that regulation by Switzerland was a key part of their strategy and they will follow all of the country’s requirements for a smooth operation.
Libra also has to deal with other issues because of its asset reserve. To avoid the volatility of other cyptocurrencies, Libra is supposed to be backed by assets like bank deposits and short-term government securities. These will be managed by a network of custodians. There is still a risk though since assets can be stolen or devalued. According to FINMA, the Libra association will be the ones responsible for those risks and not any of the future Libra holders.
Money laundering is another concern that has come up. Considering that cryptocurrencies have been used for money laundering in the past, Libra will definitely need to foolproof its system and convince regulators that it is not easy to be used for money laundering. This means that FINMA will be implementing the strictest anti-money laundering standards to ensure that Libra stays on the straight and narrow.
Libra Faces Multiple Challenges
The pressure on Libra by FINMA will just be the first of the many hurdles that the cryptocurrency will face. Experts think that even if the FINMA requirements are satisfied, other countries will not be easy to please. G7 countries have already warned that they would not let Libra proceed unless they are all satisfied with Libra meeting their respective regulations.