WealthTech

Banks Seek Regulatory Clarity before Joining Libra

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Addressing regulatory uncertainty will be necessary before banks look to join Facebook’s Libra Association, according to David Marcus, head of Calibra.

“We’ve been asked and criticised for not having banks at the table from the beginning, but I just want to clarify that this was not our decision,” said Marcus, speaking at Money 2020 US in Las Vegas. “We did have conversations with banks, I’d say that a lot of them are really interested in joining but given the very regulated nature of their businesses they want to have more regulatory clarity before joining.

“Now that we are hard at work addressing the regulatory realities that we need to face, and what the licencing regime is going to be, and the oversight is going to be, once this is clarified I can almost certainly guarantee that you will see banks at the Libra Association soon.”

Earlier this month the Bank of International Settlement (BIS)’s payments and market infrastructure committee published a report suggesting that a “thorough assessment of regulatory gaps is warranted prior to the launch of a potential global stablecoin.”

Marcus said the Libra project would not be used by Facebook to conduct more effective advertisement targeting, but also acknowledged the difficulties in separating out the data.

“It is not trivial because as you can imagine the infrastructure that we have at Facebook has been set to actually look at the data, and leverage the relevant data for targeting, so separating it completely is a lot of work, but we are going to do that and we are going to have it audited in such a way that people know that the commitments that we are making are actually being followed through.

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In July, Facebook settled a $5bn fine from the Financial Trade Commission (FTC) for privacy-related violations. This, Marcus said, has put extra pressure on Libra to ensure that it is respecting those commitments.

Marcus believes the Libra network can increase anti-money laundering and combating the financing of terrorism (CFT) supervisory tools beyond the traditional financial system infrastructure.

“Digital is more traceable than cash,” said Marcus. “[And] this will run on quasi real-time systems and real-time systems, and not batch processes systems that only enables you to catch things after they’ve happened.

“Thirdly you have an open ledger which basically is the blockchain that enables regulators and law enforcement to look at what is happening on the blockchain, building the typology and the network and understanding where there are areas of risks themselves not relying exclusively on regulated entities to self-report.”

As the volume of market data increases, regulators are inevitably having to look at artificial intelligence and machine learning to stay on top of their supervisory responsibilities, according to Bill Shelton, principal architect at the Consumer Financial Protection Bureau (CFPB).

“There is no formal initiative yet… but I think we will have to look into it,” said Shelton on the side lines of the conference. “Basically the old model of ‘let’s look at all of these spreadsheets, look at all of these data sources and do some kind of analytics with them by humans’ is just not scalable – especially with the way the industry is heading, so we are looking at ways where we might be able to take a supervisory role through automation and help us make better decisions.”