The federal finance department and the Bank of Canada are supporting a French-led international effort to monitor and study Facebook’s proposed Libra cryptocurrency. But Finance Canada said it does not yet know whether it will impose new regulations or policies on the token.
Ottawa’s call for more information about Libra echoes those from several European regulators and U.S. lawmakers.
The federal government said it does not yet know whether it will impose new regulations or policies on Facebook’s Libra cryptocurrency, and is seeking more information from the tech company and its partners on the token. In the meantime, Finance Canada and the Bank of Canada will contribute to a French-led study of stablecoins like Libra, for which the first report will be delivered at a G7 meeting in July.
Finance Canada plans to talk to Facebook and its partners about Libra, but hasn’t yet determined if the token will be subject to its rules. “Additional information on the full details of the initiative is required in order to further assess jurisdictional considerations that may arise, and where policy development and legislative or regulatory responses may be warranted,” said Anna Arneson, media relations manager at the finance department.
Facebook announced the token on June 18, and it is scheduled to launch in the first half of 2020. The cryptocurrency is designed to let users of Facebook and its subsidiaries Instagram and WhatsApp transfer money more cheaply, as well as pay for products and services on the platform. The company has signed up 27 partners so far to the Libra Association, a non-profit based in Geneva that will govern the coin. The group includes tech firms Uber, Lyft, Spotify and eBay; payment facilitators PayPal, Stripe, Visa and Mastercard; and venture capital firms Andreessen Horowitz and Union Square Ventures.
No banks are involved, because of concerns about regulatory issues with the currency. The Creative Destruction Lab (CDL), a startup accelerator program started at the University of Toronto’s Rotman School of Management, is the only Canadian and only academic partner.
Arneson noted that while information about the proof-of-concept and timeline for the currency has been released by Facebook, some important details have not been disclosed. “For example, the markets in which Libra will launch and the composition of assets in the reserve have not yet been announced,” she said.
The Canadian government is also supporting a French-led study of stablecoins— cryptocurrencies backed by real-world assets—like Libra, the reserves of which will include bank deposits and government bonds. On June 21, Banque de France governor François Villeroy de Galhau announced a task force to examine how anti-money-laundering laws and consumer protection regulations apply to such tokens.
Arneson said the working group—which also includes the International Monetary Fund and the Bank for International Settlements—is expected to make its first report at the meeting of G7 finance ministers and central bank governors scheduled for July 17 and 18 in Chantilly, France. “The Department of Finance supports this initiative and will work alongside the Bank of Canada and our other G7 partners on this issue,” she said.
The Bank of Canada will contribute to the study, but does not currently regulate stablecoins, said Isabel Jenish, media relations consultant. However, Libra may eventually fall under its jurisdiction.
In the 2019 federal budget, the government proposed that the central bank oversee new risk-management rules for retail payment providers to ensure users don’t lose their money. If the new system is implemented and Libra becomes a retail payment provider in Canada, “some of it may come under the oversight of the Bank of Canada,” said Jenish.
But she said it’s “too early to say” if Libra could be systemically important, a term for financial institutions whose failure could cause an economic crisis, and are therefore subject to more scrutiny and stricter requirements for the capital reserves they have to maintain than other companies.
“Libra, if it achieves its ambitions, would be systemically important,” said Mark Carney, Bank of England governor, in a June 20 speech. “As such it would have to meet the highest standards of prudential regulation and consumer protection.” He also noted that the token could increase financial inclusion and lower the cost of money transfers and payments.
The Canadian Securities Administrators (CSA) declined to comment on whether it or the 13 provincial and territorial regulators it represents are reviewing Libra. “The CSA and its members would need to fully evaluate a proposed product or service before making a determination as to whether it is subject to securities and/or derivatives regulation,” said Ilana Kelemen, senior adviser for communications and stakeholder relations.
Quebec’s regulator said Facebook has not contacted it about Libra and it currently lacks the information needed to decide if the currency will be regulated like a security. “We will obviously follow this file closely and be in touch with our international counterparts to discuss the subject,” said Sylvain Théberge, director of media relations for the Autorité des marchés financiers.
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Facebook briefed the Bank of Canada and other unspecified Canadian stakeholders on Libra before the coin was announced, according to Erin Taylor, communications manager at Facebook. The company declined to say whether Canadian securities commissions or governments had sought more information about Libra, but said the Libra Association will continue to work with regulators on the cryptocurrency’s implementation. CDL did not respond to a request for comment.
Carney and Villeroy de Galhau aren’t the only policymakers to raise concerns about Libra. Maxine Waters, chair of the U.S. House Committee on Financial Services, has called for Facebook to stop development of Libra until Congress and regulators have reviewed it.
Randal Quarles, chair of the Financial Stability Board (FSB)—an international organization of economic policymakers from large economies, including Canada, that makes recommendations for the global financial system—said if cryptocurrencies start being widely used for payments, policymakers will have to ensure they’re subject to high regulatory standards.
Jenish said the Bank of Canada will work with the FSB and the G7 “to assess recent developments and ensure the current regulatory framework contains the appropriate safeguards.”