Swiss FINMA Not Worried About Libra

The Swiss financial control agency believes Libra is transparent enough, but worries about unregulated “dark corner” projects that suddenly become too big to control.

Facebook’s Libra is not a threat, as it may provide enough transparency and reports about the activity, said Mark Branson, head of the Swiss regulatory body FINMA. Branson spoke about the approach to alternative finance projects during a Bloomberg event in Zurich.

“I am much more nervous about projects which develop in a dark corner in the financial system somewhere, spread themselves out through cyber space and one day are too big to be stopped,” Branson said. “Here is something which is being done transparently.”

There are plenty of “too big” and problematic projects within the crypto space, which have boomed beyond the reach of regulators. But Facebook is working toward a clear permission, to avoid future mistakes and fines.

Switzerland’s position is highly important for Libra, as the asset would be backed by the Libra Association, an entity established in Switzerland. Branson explained that Libra would have to comply with bank-like regulations, though not with special hurdles only because the project proposes a digital coin.

“We are not here to make such projects impossible,” Branson said. “We will respond to them with an open mind, with an attitude that same risks require same rules. Our rules and standards are non-negotiable,” he said.

US regulators, on the other hand, are more worried about Libra, which may create an overly-large bank-like structure. Currently, even the most widespread fintech solutions carry only a fraction of the funds within the legacy financial system. Libra may be able to reach billions of potential users, but adoption is not guaranteed.

The other concern is that Libra would become a “shadow bank” in practice, drawing in deposits that would otherwise go to regular banks.

“Facebook is potentially creating a digital monetary ecosystem outside of sanctioned financial markets -- or a ‘shadow banking’ system,” banks said, according to minutes of this month’s Federal Advisory Council meeting cited by Bloomberg.

“As consumers adopt Libra, more deposits could migrate onto the platform, effectively reducing liquidity, and that disintermediation may further expand into loan and investment services.”

Libra has also put stablecoins in the spotlight, although there are still no signs of international bodies investigating the already existing dollar-pegged assets. The crypto sector is still going through readjustment to stricter reporting requirements.

Most projects have adopted a form of KYC procedures, and the US Securities and Exchange Commission is cutting through a backlog of ICOs, imposing sanctions for selling tokens that worked as unregistered securities. Libra arrived at a moment when the requirements to regulate a crypto asset were clearer.

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