Author: Alex Haffner
In June of this year, Facebook announced to much public fanfare that it intends to rollout a new digital currency called ‘Libra’ for use in 2020, allowing its users across the globe to make online financial transactions.
As further details of the Libra project emerged and the initial fanfare and predictions of how it would change the face of global banking died down, attention duly switched to the regulatory scrutiny which Facebook might face in pursuing its grand ambitions. Regulators at various authorities around the world, including the Bank of England, went on record to emphasise that they would be considering carefully the extent to which the new project would be aligned with regulatory standards. Those predictions have now come to pass with news that the EU Commission has opened a preliminary investigation into whether Libra may create any competition law (antitrust) concerns and is gathering information to decide what, if any, further investigations to carry out.
What exactly is Libra?
Based on details provided to date, Libra will be operated by an independent not-for-profit organisation (‘Libra Association’) whose membership will comprise various companies with interests in the payments sector (PayPal, Mastercard, Visa, and Ebay are amongst those known to have already signed up). The role of this organisation will be to validate transactions, regulate the currency reserve(s) to which Libra will be pegged and determine how to allocate certain funds generated to social causes.
On launch, Libra will operate as a cryptocurrency, meaning that any transaction will be effected and validated through the use of a ledger system (ie in the same way as currencies such as Bitcoin). Users will need to open a digital wallet which will hold their Libra balance and enable them to convert “cash” (dollars, pounds sterling etc) into Libra. The idea is then that users can transfer Libra to each other and make payments for goods/services from merchants who are set up to accept Libra payments.
What are the relevant issues to be addressed?
Ever since it announced the launch of Libra, Facebook has (unsurprisingly) been on a PR offensive to focus on the positive aspects of its new project. Whilst the currency will be available through Whatsapp and Facebook Messenger, a standalone app (Calibra) will also give consumers the opportunity to use the currency without interacting with other Facebook properties. Facebook has also been at pains to emphasise that it will keep any financial data from transactions on Libra separate from user ad profiles. The fact that the Libra Association will vote on policy and operating decisions is also being promoted by Facebook as a means of ensuring more decentralized control.
With a global user base of some 2.7 billion, any new Facebook product launch is bound to prick the ears of competition law regulators concerned as to whether, and if so how, Facebook might be able to stifle competition. Regulators, for example the Federal Cartel Office in Germany, have recently stated that they regard Facebook as being dominant in the market for “private social networks”, a finding which opens the company up to much greater scrutiny as to the impact of its behaviour on competitors and consumers. Given the nascent state of global markets for digital currencies, there will clearly be a degree of sensitivity as to the extent to which Facebook might be able to leverage its market position in an unlawful manner.
The Libra project itself is fascinating on many levels. From a regulatory perspective it undoubtedly poses questions which are without any obvious precedent given that, to date, most regulators have tended to keep more of a watching brief on the burgeoning market for cryptocurrency. Arguably, the fact Facebook has become involved will now hasten those regulators’ need to clarify their thinking.
It is particularly noteworthy that the EU Commission has become one of the first regulators to raise its head above the parapet. Likely its US equivalent, the Federal Trade Commission, which is already considering broader issues concerning the market power of Facebook, Google and other tech giants will follow suit too.
At this stage, the Commission is understood to have issued preliminary questionnaires to various parties in order to gather enough information to decide whether to open a more formal investigation. Doubtless Facebook will have also received one. Those with any interest in the potential impact of Libra would be well advised to get involved too at this stage.