Yesterday, a bipartisan group of United States House Representatives introduced the “Managed Stablecoins are Securities Act of 2019.”
The bill would clarify existing financial sector rules by definitively classifying stablecoins as securities, which are regulated by the Securities Act of 1933, the Investment Advisers Act of 1940, and the SEC more broadly. The bill defines the terms “managed stablecoin” and “digital asset,” then adds those definitions to the existing Acts mentioned above. “Bringing clarity to the regulatory structure of these digital assets protects consumers and ensures proper government oversight going forward,” Representative Sylvia Garcia (D-TX) said in a statement according to CNBC’s Lauren Feiner.
This is good news. The introduction of the bill marks the first step in reining in Facebook’s vision for Libra, a digital currency set to launch early next year. If passed into law, the legislation would send a strong message. Facebook has taken to describing Libra as though it doesn’t fit within any existing classification, and would thus be able to sidestep securities regulation.
Despite this effort to update rules and provide regulatory clarity, I remain convinced that Facebook must not be able to proceed with the creation of Libra at all. Further, it is incumbent upon legislators from both sides of the aisle to do much more than simply provide the right rules of the road, hoping to hold Facebook in compliance even as it repeatedly collides with the guardrails.
In this series, I’ll present my perspective on the situation, and argue that because Facebook has repeatedly failed to police its own platform, it should not be permitted to proceed with the creation of Libra.
Facebook’s Many Existing Deficiencies
When Facebook unveiled its plans to create a new digital currency called Libra in June, reactions were mixed. Despite the excitement surrounding cryptocurrency and blockchain that has become common in recent years among technology enthusiasts, what reasonable person could ignore the checkered past of Libra’s corporate creator? Clearly banking on the potential for lawmakers to divorce themselves from the lessons of recent history, Facebook now continues to seek the requisite regulatory approval from officials on Capitol Hill. Although the social networking giant revised its infamous motto of “Move fast and break things” in 2014, the planned launch date for Libra of early 2020 has some wondering if anything has really changed at Facebook in the years since a few enterprising Harvard students started the company in 2004.
When Facebook CEO Mark Zuckerberg testified before the House Financial Services Committee on October 23, Committee Chair Maxine Waters (D-CA) delivered her assessment of the Libra situation. Citing insufficient gender representation in the upper management of Facebook, Facebook’s role in the 2016 US election and the recent decision not to fact check political ads for 2020 among other examples, Representative Waters came to the “conclusion that it would be beneficial for all if Facebook concentrates on addressing its many existing deficiencies and failures before proceeding further on the Libra project.”
Facebook’s Vision for Libra: A Plea for the Underbanked
Perhaps Rep. Waters’ conclusion is too harsh. After all, Facebook and advocates of Libra say that the world’s underbanked are in dire need of access to financial services. When Facebook’s Head of Calibra, David Marcus testified before the US Senate Banking Committee in July, he urged legislators to act, claiming that the crises of the underbanked has left millions of people around the world without access to basic financial services at a reasonable cost.
“The status quo is not working for many,” Marcus argued. “It is too expensive for people around the world to use and transfer their money. We believe Libra can offer a more efficient, low-cost, and secure alternative.” Libra’s appeal then, is its aid to the underbanked. For some, access to Facebook and a smartphone is easier to come by than it is to establish a traditional bank account—something most of us take for granted. Facebook says Libra would provide the underbanked with access to secure, convenient, and low-cost financial services. As David Marcus argued in July, Libra’s “first goal is to create utility and adoption, enabling people around the world—especially the unbanked and underbanked—to take part in the financial system.”
Facebook has connected over 2.4 billion people worldwide, and the platform includes pages for many brands and small businesses, as well as political, educational, and non-profit groups. Facebook launched Facebook Pay earlier this month, and if allowed to proceed with Libra, it will further enrich its trove of messaging, social networking, and users’ private financial data by integrating the digital currency across the breadth of its platform. In the next post I’ll describe my perspective on the Libra situation and tell why my experience has led me to conclude that permitting Facebook to proceed with the creation of Libra would be an irresponsible move for regulators.
Sources for this post
- C-SPAN – Facebook CEO Testimony Before House Financial Services Committee, October 23, 2019.
- C-SPAN – Facebook Digital Currency Hearing at Senate Banking Committee, July 16, 2019.
- CNBC – “New Bill Would Make Facebook’s Cryptocurrency a Security under the Law, Inviting Greater Regulation” by Lauren Feiner, November 21, 2019.
- Facebook – “Simplifying Payments with Facebook Pay” by Deborah Liu, November 12, 2019.
- Mashable – “Facebook Changes Its ‘Move Fast and Break Things’ Motto” by Samantha Murphy, April 30, 2014.
- New York Times – “Facebook Plans Global Financial System Based on Cryptocurrency” by Mike Isaac and Nathaniel Popper, June 18, 2019.