07 July 2019

Financial Times: Banks steer clear of Facebook's Libra project

US and European banks are steering clear of Libra, Facebook's project for a new cryptocurrency, for fear of antagonising regulators and cannibalising their own digital currency projects.

In the two weeks since Facebook announced its plans for a new digital currency, there has been silence from the banks about a project that threatens to break down their role as gatekeepers of the global financial system. 

“We’re still learning what it is and trying to work out where we stand on it, are we an opponent, partner or do we ignore?,” said a person familiar with the approach to the project of one of the world’s biggest banks. 

Up and down Wall Street, the City of London and Europe’s financial centres, senior industry executives reel off a litany of hurdles to participation, while some also criticise the way Facebook has approached the project so far. [...]

Several other senior executives said there would be big hurdles for their future involvement, either as active members of the Libra Association or by helping people to convert traditional money in and out of Libra coins.

Mike Corbat, head of Citigroup, recently said that even though he is a “true believer” in cryptocurrencies and their underlying blockchain technology, Citi’s capacity to participate is constrained.

 “The challenge with cryptocurrencies is the opaqueness as to the sources of the money,” he said, referencing anti money-laundering (AML) standards banks are held to. “It would be outside our ability to take or send those monies on behalf [of people who hold them].”

Meanwhile, several banks are pushing ahead with projects to speed up payments, which some said would overtake the Libra initiative.

Mastercard, which is part of the Libra project, is working with six Nordic banks to build a payments system that would allow real-time transfers, and be used across multiple currencies in multiple countries.

Paul Stoddart, Mastercard president of new payment platforms, said he expected to see “more initiatives like this around the world where there are groups of countries or regions that are economically more tightly integrated.”

In the US, The Clearing House, a payments company backed by a coalition of 25 large banks including JPMorgan Chase, Bank of America and Citigroup, offers domestic real-time payments on a network, launched in 2017, that already connects half of the country’s deposit accounts. 

And in June, 13 of the world’s biggest banks including UBS, Lloyds Banking Group and MUFG, announced plans to launch their own digital coin for use in wholesale banking. 

A senior executive at one of the banks involved said: “Facebook is right that cross-border payments are clunky and convoluted and you have to go through far too many counterparties, but banks are getting involved and will solve this problem and solve it pretty quickly.” The banks expect that the first institutional transaction with the “universal settlement coin” will take place within a year, and could be a cross-border trade. [...]

A senior executive at a third large US bank said he did not believe banks would have to lobby very hard to ensure that Libra attracts the same know-your-customer and anti money laundering scrutiny as traditional payments networks, which will heap costs on the project. 

“If this thing has the scale of 2bn people who can move money around outside of the financial system (without AML/KYC), it makes a mockery of the system,” he said. “We won’t have to persuade them in Washington . . . regulators are at it, they’ll make them lift to the same standards as everyone else.” 

The executive added that Facebook, which recently hired a prominent lobbyist from Standard Chartered, had already mishandled the regulatory piece by announcing their plans without having first brought regulators onside. [...]

Full article on Financial Times (subscription required)

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