The size and
scale of Facebook’s planned Libra cryptocurrency poses “questions for
society and government,” a top official of the UK’s Financial Conduct
Authority (FCA) told the annual conference of the Cambridge Centre for
Alternative Finance at Cambridge Judge Business School on 2 July.
comes to fruition, Libra could be very significant indeed,” said Christopher
Woolard, Executive Director of Strategy and Competition at the FCA. “Its
size and scale will pose questions for society and government more generally
about what is acceptable and desirable in this space.
this may have been a sector that has lived by the mantra of ‘move fast and
break things’, but the issues raised here require deep thought and detail,”
Woolard told the conference.
month announced plans to launch the Libra token, which will be backed by a pool
of currencies and short-term sovereign bonds, and with founding members that include
big firms such as Visa, PayPal, Uber and Vodafone.
that the term “stablecoin” – although widely used to describe
initiatives such as Libra – is of limited utility as it’s not seen as a
distinct category of assets, adding that a “stablecoin” could sit
within or outside the FCA’s regulatory framework depending on the circumstances
of how it is used.
Woolard said that “stablecoin” could refer to a cryptocurrency backed by a fiat currency, which in some cases could constitute e-money – and in such cases “the issuer needs to be authorised as an e-money issuer” and comply with all e-money and payment services regulations. But ‘stablecoin’ could also apply to algorithmically controlled tokens, and could amount to regulated products such as collective investment schemes.
set up by the FCA, the Bank of England and the UK Treasury has classified
cryptoassets into three broad types: exchange tokens such as Bitcoin using
distributed ledger technology (DLT); security tokens amounting to a specified
investment; and utility tokens which can be redeemed for a product or service
typically provided through a DLT platform.
could fall within or between” regulatory categories, which “makes us
question how useful this one term – ‘stablecoin’ – is when it comes to
labelling all these different tokens,” Woolard said in his keynote address
to the Cambridge conference. “Depending on its structure it could be many
things – for instance, a derivative, a unit in a collective investment scheme,
another kind of security or e-money.
question whether tokens governed by algorithms or underpinned by other
cryptoassets are necessarily ‘stable,'” he said.
In his remarks,
Woolard also emphasised the need for regulators to see beyond the “jargon”
and “hype” of cryptoassets to understand the substance of
transactions using these innovations. “It is crucial that we also think
about the reality – the technical details, the technology, and the legal
position – in other words, we ourselves need to go behind the scenes.”
The fourth annual conference of the Cambridge Centre for Alternative Finance (CCAF) had as its theme “Transforming Alternative Finance: Innovation, Trust and Impact” – and many speakers focused on how trust is essential given the loss of trust in financial service providers owing to the financial crisis of the last decade.
“There’s a fundamental change in how trust is looked at in economies, and Facebook is taking advantage of that” in launching Libra, said Dr Robert Wardrop, Director of the CCAF, adding that a major challenge for regulators in dealing with an initiative like Libra is its potential scale. If the number of Libra partners reaches into the thousands, “who do you go after? It creates a practical regulatory impediment.”
Bob Wigley, Chair of the trade body UK Finance, said that the UK had generally taken a “forward-leaning approach” in its regulation, and that most regulation since the financial crisis had been needed. Yet he cautioned against the issuance of new rules by a multitude of regulators without proper co-ordination, as this can require constant upgrading of IT systems and thus hold back growth in financial services.
Mora, Global Director of the Finance, Competitiveness & Innovation Global
Practice at the World Bank, said that fintech has huge potential to help
the 1.7 billion adults around the world who are still unbanked, many of whom have
a mobile phone. About 235 million of those unbanked receive agricultural
payments in cash, 100 million get government payments in cash, and 260 million
use cash for remittances. “Fintech is transforming the financial system,”
he said, “but has not yet reached disruptive critical mass.”
Also at the conference, a new Cambridge Bitcoin Electricity Consumption Index (CBECI) was announced. Michel Rauchs, Cryptocurrency and Blockchain Lead at the CCAF, outlined how the real-time index will allow simple comparisons of Bitcoin’s electricity usage with other uses of electricity, such as boiling water with electric tea kettles.