The Bank of England (BoE) has laid out the rules of engagement for Facebook’s proposed cryptocurrency, Libra, and other similar digital payment providers.
This includes requirements they must meet before they can operate in the UK. In a statement, the BoE’s Financial Policy Committee (FPC) said: “The terms of engagement for innovations such as Libra must be adopted in advance of any launch. UK authorities should use their powers accordingly”.
The principles are for the purpose of ensuring that payment systems support financial stability, according to the bank. The rules will guide the bank’s assessment of how regulation and supervision of digital payment systems should adjust, which it describes as rapidly evolving.
Any such system would have to meet “the highest standards of resilience and be subject to appropriate supervisory oversight”, it said. One of the principles stipulates that sufficient information is available to enable the monitoring of payment activities so that emerging risk to financial stability can be identified and addressed.
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“Libra has the potential to become a systemically important payment system,” the BoE’s Financial Policy Committee said. “The FPC encourages exploration of alternative solutions to improve the efficiency of domestic and cross-border payments.”
On Tuesday, the European Union said it will propose new legislation to cover cryptocurrency projects like Libra, which it says poses a risk to the wider financial system. Rather than apply new rules like the EU, BoE’s FCP said that, for now, it will apply its principles by applying existing supervisory tools.
Facebook announced its cryptocurrency project in June this year, saying it will be “a global currency and financial infrastructure” that is managed by an independent body, the Libra Association. Libra and its digital wallet Calibra has the potential to dominate the market, which has sparked fears over anti-competitive behaviour.
Libra has been met with criticism from regulators and governments, with both France and Germany pledging to block it in Europe.
Early this week, PayPal, one of the original members of the Libra Association, became the first business to pull out of the currency saying it had instead chosen to focus on its core business instead.