Blockchain Blog

Facebook Announces New Global Currency; Brazil Announces Regulatory Sandbox; FATF Finalizes Recommendations

By Odelia Nikfar and Alexandra Levin Kramer

The following is a survey of recent global developments significant to the blockchain industry.

United States

Facebook: Facebook announced on June 18, 2019, that it is launching “Libra,” a new global currency and financial infrastructure to empower billions of people with a new blockchain, a low volatility cryptocurrency, and a smart contract platform. The mission of Libra is to provide access to the financial markets – to which more than 1.7 billion adults do not have access. Facebook states that Libra is built on a secure, scalable, and reliable blockchain, which is backed by a reserve of assets designed to give it intrinsic value. It is also governed by the independent Libra Association tasked with evolving the ecosystem. Members of the Libra Association currently consist of large corporates including Mastercard, Paypal, Stripe, Visa, eBay, Facebook/Calibra, Lyft, Spotify, Uber and many more.[1] In addition to the Libra stablecoin, investors will be able to purchase security tokens called Libra Investment Tokens. Investors will be able to cast votes on how the blockchain code will evolve and how the association will be governed.[2]  After word of the project leaked to the press ahead of the announcement, the U.S. Senate Banking Committee wrote an open letter[3] to Facebook in early May asking a number of questions about Libra. Questions covered issues of data privacy, selling user information, as well as regulation and compliance, given Facebook’s recent challenges in these areas. Facebook’s leadership has not yet responded to the letter but has stated that it will address the Senators’ questions.[4] Lawmakers came together again, once the official announcement was made by Facebook, to express their concern over the project, asking Facebook to stop developing its new cryptocurrency network until Congressional hearings can be held.[5] The U.S. House Financial Services Committee will host a hearing on Facebook’s Libra cryptocurrency next month, just a day after the U.S.

U.S. House of Representatives: The newly assembled House Task Force on Financial Technology held its inaugural hearing on June 25, 2019. The main topic of discussion during the hearing was how the U.S. Securities and Exchange Commission (the “SEC”) has been policing the cryptocurrency market. Representatives took the opportunity to question Valerie Szczepanik, the Senior Advisor for Digital Assets and Innovation and Associate Director of the Division of Corporation and Finance at the SEC, on the lack of clarity coming from the SEC in the crypto area. Both Republican and Democratic representatives voiced their concerns about the lack of clear guidance coming from the SEC. Rep. Warren Davidson (R-Ohio) emphasized that the lack of clarity is causing the cryptocurrency space to move abroad, while Rep. Joshua Gottheimer (D-NJ) voiced concern over the future of crypto in the U.S. Ms. Szczepanik responded by stating that the SEC believes that it has been quite clear in their views, claiming that they have produced guidance on Initial Coin Offerings since 2017 and issued multiple statements since then. See CKR’s previous Blockchain Blog for more information. Ms. Szczepanik also claimed that the agency has been open to questions and dialogue. Representatives remained unconvinced, claiming that this was an outdated mode of regulation.[6] Meanwhile, Representatives have reached across the aisle to propose the Token Taxonomy Act[7], which directs the SEC to make regulatory changes and clarify the “Howey Test” (a test formulated in a 1946 Supreme Court case deeming what constitutes an investment contract and therefore a security). 

White House: The Trump administration is working with Orbs, an Israeli blockchain startup working with Palestinians, to develop blockchain solutions for the Israeli-Palestinian conflict. This announcement comes from a summit convened by the White House in Bahrain to discuss the conflict. The White House is aiming to put $50 billion behind its “Peace to Prosperity” plan[8] to boost the Palestinian economy. Netta Korin, Orbs Co-Founder and former advisor to the Israeli Ministry of Defense, says this approach is a shift in dealing with economic aid to the Palestinian people, from donations to investment.[9] American economist, Kevin Hassett, even suggested that blockchain could be used to resolve land title disputes in Palestinian territories. There are also proposals to use blockchain technology in Palestinian territories to track the flow of capital and the distribution of humanitarian aid, as well as develop the economy. Ms. Korin believes that “blockchain will play a major role in the region going forward.”

FATF

On June 21, 2019, the Financial Action Task Force (the “FATF”), an intergovernmental organization, finalized its recommendations[10] for combating the use of cryptocurrency for money laundering and terrorism financing. The guidelines place heavy emphasis on user identity, recommending stringent know-your-customer (“KYC”) requirements. This includes identity verification to combat criminal, terrorist, and illicit use of cryptocurrency service providers. The recommendations include guidelines for service providers to pass along information about customers to each other.  In addition to requiring identity and KYC information, the guidelines recommend recording transactions for at least 5 years. The FATF also encourages international “co-operation and co-ordination with respect to AML/CFT [anti-money laundering and countering the financing of terrorism] policies.” It plans to issue a report in one year to evaluate the implementation of its guidelines.

Brazil

On June 13, 2019, Brazil’s Ministry of Finance, the Central Bank of Brazil, the Securities Commission, and the Superintendent of Private Insurance, announced their intention to implement a regulatory sandbox model in Brazil. According to these institutions, this action is in response to the growing use of blockchain technology in the country. Regulators will be challenged to act with the necessary flexibility, within the limits allowed by legislation, to adapt their regulations to technological changes and constant innovation. These institutions are hopeful this action will promote growth in the financial, security, and capital markets.[11] Brazil currently has the highest number of cryptocurrency holders in Latin America, and the fifth highest number in the world.[12]  

Russia

The Russian Central Bank has said the institution could potentially launch its own digital currency. Although not ready to be actualized in the immediate future, various central banks, including Bank of Russia are investigating the possibility.[13] While Russian authorities have the tradition of being skeptical, they have recently softened toward the idea.[14] Additionally, a representative from the Ministry of Finance said on June 21, 2019, that the Ministry is considering allowing cryptocurrency trading.[15]

Malta

The Prime Minister of Malta announced on June 23, 2019 that every rental contract in Malta would be registered on a blockchain. This initiative is part of an effort to ensure security and prevent record tampering and is one of the many initiatives Malta has taken in efforts to be open to blockchain experimentation.[16]



[1] Libra Association Members, Libra White Paper, Libra, https://libra.org/en-US/white-paper/ 

[2] Michael del Castillo, Facebook Reveals Cryptocurrency Plans For Two New Revenue Streams, Forbes, (June 18, 2019, 5:00AM), https://www.forbes.com/sites/michaeldelcastillo/2019/06/18/facebook-cryptocurrency-everything-every-business-leader-needs-to-know/#379abc117a31  

[3] Letter from Mike Crapo & Sherrod Brown, United States Senate Committee on Banking, Housing, and Urban Affairs, to Mike Zuckerberg, Founder, Chairman and Chief Executive Officer (May 9, 2019), https://www.banking.senate.gov/imo/media/doc/5.9.19%20Facebook%20Letter.pdf

[4] Nikhilesh De, Facebook Has Yet to Answer US Lawmakers’ Questions About Libra Crypto, Coindesk (June 18, 2019), https://www.coindesk.com/facebook-has-yet-to-answer-us-lawmakers-questions-about-libra-crypto

[5] Brian Fung (@b_fung), Twitter (June 18, 2019, 2:33PM), https://twitter.com/b_fung/status/1141096663760723968

[6] Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation, House Task Force on Financial Technology, 115th Cong. 1-5 (2019) https://docs.house.gov/meetings/BA/BA00/20190625/109733/HHRG-116-BA00-20190625-SD002.pdf.  

[7] Token Taxonomy Act, H.R. 115th Cong. (2018) https://www.congress.gov/116/bills/hr2144/BILLS-116hr2144ih.pdf.  

[8] Peace to Prosperity, A New Vision for the Palestinian People and the Broader Middle East, https://www.whitehouse.gov/peacetoprosperity/

[9] Leigh Cuen, Trump Administration in Talks With Crypto Startup on Israeli–Palestinian Peace Plans, Coindesk (June 27, 2019), https://www.coindesk.com/trump-administration-in-talks-with-crypto-startup-on-israeli-palestinian-peace-plans.

[10] FATF (2019), Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, FATF, Paris, http://www.fatf-gafi.org/publications/fatfrecommendations/documents/Guidance-RBA-virtual-assets.html.

[11] Securities and Exchange Commission of Brazil, Comunicado Conjunto, (June 13, 2019), www.cvm.gov.br/noticias/arquivos/2019/20190613-1.html

[12] Diana Aguilar, Brazilian Financial Authorities Announce Regulatory Sandbox for Blockchain, Coindesk (June 17, 2019), https://www.coindesk.com/brazil-financial-authorities-announce-regulatory-sandbox-for-blockchain

[13] Russian News Agency, ЦБ изучает возможность запуска собственной цифровой валюты, TACC (June 15, 2019), https://tass.ru/ekonomika/6553895

[14] Daniel Palmer, Russia’s Central Bank is Considering Launching a Digital Currency, Coindesk (June 17, 2019), https://www.coindesk.com/russias-central-bank-is-considering-launching-a-digital-currency   

[15] Interfax, В Минфине допустили возможность купли-продажи криптовалют в РФ, (June 21, 2019), https://www.interfax.ru/business/666183