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An article relating to this blog post on Finextra:

PayPal quits Facebook's Libra project, Visa and Mastercard could follow

Update: Facebook's Libra plans continue to stumble as PayPal quits the digital currency project, with Visa and Mastercard also reconsidering their involvement.

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Compliance Cold Feet? The Evolving Payments and Blockchain Landscape

This week, three major regulated financial firms (PayPal, MasterCard, Visa) all reportedly are getting cold feet about their participation in the Libra Association project.  Can anyone really be suprised after last month's policy moves? Consider:

--As noted in this analysis on Medium over the summer, the revenue streams for the Libra Association raise significant monetary and economic policy issues that go well past the financial regulation and cryptocurrency issues raised more frequently by commentators. 

--During September, three stablecoin issuers met with central bank officials under the umbrella of both the Group of Seven and the Bank for International Settlements.  The agenda for that meeting (released publicy by the BIS after the fact) made clear that the public policy interest in the Libra Association project goes well past traditional financial regulation to include many of the issues rasied in the Medium post above.

--Also during September, Switzerland made clear that the Libra Association will be required to apply for a payment system license and be subject to regulatory oversight.  In addition, activities beyond payment system services (e.g., intermediation services like lending as noted in teh Medium post above) could easily attract other regulatory requirements, like the the Basel 3 rules.  Policymakers are just getting warmed up, since Swiss authorities also flagged additional issues beyond their authority that will also require attention, not the least of which are tax and AML issues.

--Finally, half a dozen central bank governors participated in a multi-day conference on blockchain policy issues at the OECD at the end of September. 

The three payment systems providers reportedly getting cold feet may have realized that signfiicant competition issues could arise from their participation in this project, as suggested in this analysis from the summer.  Or perhaps the full weight of potential regulatory compliance obligations have only just now become clear to the three companies.

Would the loss of three major payment systems/credit card operators be fatal to the Libra Association? Not necessarily.  It is true that to function the Libra Econnomy requires a payment system.  The Libra Association as proposed would have difficulty serving that function since the Association has been structured as an board of directors/policy entity rather than an operational company. 

Replacing the functions provided by the three payment systems companies in the Libra Economy would require that the Libra Association (or Facebook, or both) to consent to regulatory oversight not only in Switzerland but in every jurisdiction where payment services are offered.   

How the Libra Association responds if one more payment providers leave its ecosystem will likely hold significant implications for the shape of the regulatory perimeter regarding both blockchain and stablecoin innovators.

This is really becoming interesting.


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