Caroline Binham in London
Central bank says digital coin must be regulated as 'systemically important' payment system
The Bank of England has put Facebook on notice that its plans to upend global payments through its digital coin, Libra, must be subject to tough oversight across its ecosystem prior to launching.
In its strongest statement to date over Facebook’s plans, the BoE on Tuesday said that Libra had the potential to be a “systemically important” payment system, and that it needed to be regulated as such. Facebook’s heft and popularity around the world means that its plans to offer a digital coin have particularly caught the attention of policymakers, regulators and politicians.
The BoE’s Financial Policy Committee — which is responsible for spotting and mitigating threats to the UK’s financial stability — pledged that regulators in the UK will look at actual functions of Libra and other payments firms, and will seek to apply traditional regulations to them. The Treasury is also starting a review to make sure the UK’s regulations for payments is up to scratch.
The BoE is not just concerned about Libra itself, but also the wallet providers, exchanges and other links in the chain that form the payment system Facebook has set out.
“The resilience of the proposed Libra system would rely on the stability of not just the core elements of the Libra Association and Libra Reserve but also the associated critical activities conducted by other firms in the Libra ecosystem such as validaotrs, exchanges or wallet providers,” the FPC said in its quarterly laundry list of worries.
It added that the various links in the chain underscored “the need to ensure end-to-end resilience.”
In practice, that means that if wallets are performing the traditional functions of a current account, the UK will insist on them meeting traditional rules, such as safeguarding and capital requirements.
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