WASHINGTON — Despite Facebook's assurances that it will get regulators to sign off on its cryptocurrency plan before Libra is launched, the first of two hearings this week with an executive from the company made clear that lawmakers are not convinced.
David Marcus, head of Facebook's Calibra digital wallet,
But members of both parties did not hold back in questioning the project. Some Republicans said they recognized the potential for innovation, but other lawmakers were skeptical and some said Facebook's massive growth and recent privacy scandals make it hard to trust the company's statements about the cryptocurrency project.
Sen. Sherrod Brown, D-Ohio, the committee's top Democrat, said Facebook's past data security issues raise questions about whether consumers and policymakers should depend on the company for financial services.
“Now Facebook is asking people to trust them with their hard-earned paychecks,” said Brown. “It takes a breathtaking amount of arrogance to look at that track record and think, you know what we really ought to do next? Let’s run our own bank and our own for-profit version of the Federal Reserve for the world.”
Here are some key takeaways from the hearing:
Privacy controls are a key worry for policymakers
Lawmakers from both parties homed in how Facebook plans to
“Libra is based on a relatively new and continually evolving technology in which it is not entirely clear how existing laws and regulations apply,” said Senate Banking Committee Chairman Mike Crapo, R-Idaho, in his opening remarks. “I am particularly interested in its implications for the protection and privacy of individuals’ data.”
Others more directly criticized Facebook's recent privacy issues and said the company should be more focused on fixing problems revealed by past scandals than expanding into new areas.
“You should go ahead and make sure that you’ve got your own shop fixed. ... Facebook has a lot of problems," said Sen. Brian Schatz, D-Hawaii.
Facebook has said there will be walls between data related to the crypto service and other types of user data.
But Sen. Tina Smith, D-Minn., said she was unconvinced that consumers’ data would not be shared given the company’s business model of monetizing data.
“What Facebook is really good at is capitalizing literally on that data and so I have to say I am not reassured by your statement that you can't see any reason right now why there wouldn't be data-sharing between these platforms,” said Sen. Tina Smith, D-Minn.
And Sen. Martha McSally, R-Ariz., raised concerns that Libra’s data-sharing policies could change after consumers have registered with the platform.
"So you violated privacy in the past as a company, you continue to have issues, you continue to change the privacy, even rules without informing users, yet you are launching a new product and you're claiming that the privacy is going to be protected," McSally said. "So how are users to know that that's also not going to change and they're not going to be violated?"
Lawmakers also questioned Libra's governing structure and how it would be regulated
Facebook is currently proposing that an association of about 100 representatives from the payments and technology industries including Mastercard, PayPal and eBay, will oversee Libra’s blockchain and reserve.
That association will be based in Geneva and regulated by the Swiss Financial Markets Supervisory Authority, though Libra will have to register with the Financial Crimes Enforcement Network as a money services business.
"In the U.S., there are a number of regulators that we are engaged with, and we're also engaged with the G7 working group that includes finance ministries and central banks that are looking into Libra, and we are working collaboratively with them as well," said Marcus.
But Schatz said he has heard that members of the Libra Association have reservations about the proposed cryptocurrency but are participating in the endeavor because Facebook has so much market power and they don't want to be left out.
“How do you answer the question about size and power and the idea that lots of people out there already think that Facebook is two big and too powerful, and now you are going to get into currency,” Schatz said.
Senators also wondered if U.S. regulators were being sidelined with a European regulator getting primary jurisdiction over Libra.
“By setting up Libra in Geneva, Switzerland, it makes me wonder whether the rules of the road and supervisory oversight will be focused more on the Swiss financial market supervisory authority,” Crapo said.
Sen. Mike Rounds, R-S.D., echoed Crapo’s question.
“What did Switzerland offer that the United States did not, and what is it about our regulatory framework that puts us perhaps at a disadvantage?” Rounds said.
Marcus told the committee that Facebook did not intend to skirt U.S. regulations.
“I want to reaffirm that we chose Switzerland, not to evade any responsibilities of — or oversight, but rather because it is a well-established international place with headquarters for" the World Trade Organization and the Bank of International Settlements, Marcus said. “And despite the fact that the Libra Association will be headquartered in Switzerland, it will still register with Fincen and, as a result, will have oversight from U.S. regulators.”
Some Republicans see opportunities for innovation with Libra
Facebook has touted Libra as a mechanism for promoting financial inclusion and expanding financial services to unbanked consumers.
"We want to create more access to better, cheaper, and open financial services — no matter who you are, where you live, what you do, or how much you have," Marcus said in his prepared testimony.
Despite Crapo’s concerns about how Libra will be regulated, he said Libra has the opportunity to expand access to the financial system to more consumers, given Facebook’s more than 2 billion users.
“Despite the uncertainties, Facebook’s stated goals for the payments systems are commendable,” Crapo said. “If done right, Facebook’s efforts to leverage existing and evolving technology and make innovative improvements to traditional and nontraditional payments systems could deliver material benefits, such as expanding access to the financial system for the underbanked, and providing cheaper and faster payments."
Other Republicans pushed back on the idea that Congress should try to stop Facebook in its tracks in developing Libra.
“Let me just say it strikes me as wildly premature for us to come to the conclusion that we have to act now to prevent what could be a very constructive innovation in financial services,” said Sen. Pat Toomey, R-Pa. "I think it's clear that [cryptocurrencies] could help us lower payment transaction costs. They could facilitate access to capital. They provide pseudonymity. They could provide levels of security that other forms of currency have not.”
And Sen. Thom Tillis, R-N.C., said that Facebook’s development of Libra is an opening for the United States to be a leader in establishing standards and driving down transaction costs in the digital currency world.
For the U.S. it's "an opportunity to set an international standard that will ultimately provide greater consumer protections,” just as it has done with its "gold standard" banking system, Tillis said.
