Facebook warns too much regulatory pressure could sink Libra
Facebook must have expected some backlash when unveiling its plans for Libra. But it may have underestimated just how much.
International regulatory pressure and uncertain demand may cause Libra to never see the light of day, according to documents Facebook submitted to the U.S. government.
Libra is based on a relatively new and unproven technology, and the laws and regulations surrounding digital currency are uncertain and evolving, Facebook said in a 10-Q SEC disclosure document for the quarter that ended June 30. The document is not limited to Libra; Facebook discloses information tied to dozens of regulatory requirements, with Libra addressed near the end.
Congress and regulators globally have fiercely criticized Libra in the past month, with hearings as recently as Tuesday. Some politicians have called for Libra to be halted, while others have criticized parts of Libra's structure that are designed in part to assuage regulators, such as its model of using multiple traditional currencies to act as a stablecoin to mitigate currency volatility. Regulators in Japan have said using multiple currencies to stabilize Libra potentially makes regulation more complicated than backing it with a single government currency.
The accumulation of this pressure may prove too much for Facebook, which leaves open the chance that Libra may not launch.
“Libra has drawn significant scrutiny from governments and regulators in multiple jurisdictions and we expect that scrutiny to continue,” Facebook said in its SEC disclosure. "As a primary sponsor of the initiative Facebook is participating in responses to inquiries from governments and regulators, and adverse government or regulatory actions or negative publicity resulting from such participation may adversely affect our reputation or harm our business.”
Regulations in the U.S. and elsewhere are “not clear,” according to Facebook, and that may delay or impede the launch of the Libra currency as well as the development of Facebook’s products and services, or increase operating costs.
Like all other cryptocurrency projects, Libra faces a challenge in luring merchants and consumers to use crypto for payments when they are already accustomed to using other means.
Facebook acknowledges this in its SEC form, saying it faces an uncertain market, "so there’s no assurance that Libra or Facebook’s associated products and services will be made in a timely manner, or at all."
The social network does not have significant prior experience with digital currency or blockchain technology, which may adversely affect its ability to successfully develop and market these products and services, Facebook says in its disclosure.
Among other participants in Libra, Visa CEO Alfred Kelly recently called the card brand's involvement "non-binding" and said decisions on Visa's participation would be based on how the regulatory process progresses. In an interview, Mastercard executive vice president of digital solutions Jorn Lambert said some markets may not "be ready" for Libra.
"Engaging with regulators, policymakers and experts is critical to Libra's success," a Facebook spokesperson said in an email. "This was the whole reason that Facebook, along with members of the Libra Association shared our plans early. The time between now and launch is designed to be an open, collaborative product. We will take the time to get things right."