October 9, 2019 10:11:48 AM
The Bank of England has warned Facebook that its new digital coin, Libra, will face tough regulatory scrutiny ahead of its launch.
In minutes of the latest Financial Policy Committee (FPC) meeting, the Bank said Libra had the potential to become a “systemically important” payment system and would need to show resilience across the entire chain.
The comments came as the Bank also gave its latest assessment of the UK’s financial stability, confirming that lenders remain able to withstand a worst-case disorderly Brexit.
It added that “extensive” contingency planning has helped mitigate most of the threats of a no-deal to UK financial stability, although it added that “material risks of economic disruption remain”.
In its strongest message yet on Libra, the Bank said it is planning to apply existing regulations for now, despite its EU counterparts announcing plans on Tuesday to draw up new rules for cryptocurrency payment systems.
The FPC said: “Libra has the potential to become a systemically important payment system.
“The FPC judges that such a system would need to meet the highest standards of resilience and be subject to appropriate supervisory oversight.”
It added: “The terms of engagement for innovations such as Libra must be adopted in advance of any launch.
“UK authorities should use their powers accordingly.”
Facebook plans to launch its Libra coin and a digital wallet next year and the plans have caught the attention of regulators and central banks worldwide.
The Financial Conduct Authority (FCA) has already warned Facebook that Libra will warrant intense scrutiny.
In the FPC report, the Bank said it was concerned not just about Libra but also the other parts of the chain that form the entire system – such as the wallet providers and exchanges.
It said: “The resilience of the proposed Libra system would rely on the stability of not just the core elements of the Libra Association and Libra Reserve, but also the associated critical activities conducted by other firms in the Libra ecosystem such as validators, exchanges or wallet providers.”
This highlighted the need for “end-to-end resilience”, the Bank said.
The Bank also confirmed it would give an update in December on the review it is conducting with the FCA into changes to open-ended funds like Neil Woodford’s suspended flagship equity income fund.
The under-fire fund manager gated the fund in June – leaving hundreds of thousands of investors locked out of their cash – and the Bank has said it will look at potentially imposing restrictions which could ban funds invested in illiquid assets from offering short-term notice periods.