Blockchain Blog

CONGRESS REQUESTS HALT ON LIBRA IN FORMAL LETTER; U.K. PROPOSES BAN ON SALE OF CRYPTO-DERIVATIVES; PROPOSED SOLUTIONS TO TOUGH FATF RULES

By Odelia Nikfar and Alexandra Levin Kramer

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

United States

Facebook: On July 2, 2019, four members of the U.S. House of Representatives formally called on Facebook and its partners to agree to a moratorium on Libra, its proposed cryptocurrency and Calibra, its digital wallet. In the letter addressed to Mark Zuckerberg, Sheryl Sandberg, and David Marcus (Calibra’s CEO), the Representatives expressed many concerns with the new venture, including privacy, trading, national security, and monetary policy concerns for users, investors, consumers, and the broader global economy. The Representatives claim that the lack of information on the Facebook whitepaper exposes the risk of the absence of clear regulatory protections. The letter highlights Facebook’s past missteps in not keeping their users’ information safe, pointing to the 2016 incident where Cambridge Analytica had access to more than 50 million Facebook users’ private data which it used to influence voting behavior, resulting in a $5 billion fine to the Federal Trade Commission . The Representatives emphasized that the sheer number of Facebook users (over 25% of the world’s population) who may have access to Libra is reason for a halt in development until regulators and Congress can examine these issues and take action. In their words, “failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”[1] Other countries have also expressed concern over Libra including Japan[2] and the U.K.[3]

United Kingdom

The Financial Conduct Authority (“FCA”), a U.K. financial regulator, proposed on July 3, 2019 a ban on the sale of crypto-derivatives to retail consumers. The FCA considers these types of products as ill-suited to retail consumers who cannot reliably asses the value and risks of derivatives and may suffer from sudden and unexpected losses from investing in these products. The FCA estimates the potential benefit of the ban to retail consumers to be in the range from £75 million to £234.3 million per year.[4]

Financial Action Task Force

Financial Action Task ForceBlockchain company CipherTrace is set to team up with Shyft, a firm developing a blockchain-based identity and attestation platform, to create a solution to the recently recommended guidelines announced by the Financial Action Task Force (“FATF”), including a requirement that virtual asset service providers pass information about their customers to one another when transferring funds between firms. FATF gave member countries one year to adopt the guidelines. This initiative by CipherTrace and Shyft intends to launch “a pilot program to develop a ’shared smart-contract and cryptographic access controls’ allowing cryptocurrency exchanges to manage access to users’ private details.”[5] 


[1] Letter from Rep. Maxine Waters, Chairwoman of Comm. on Fin. Servs., Rep. Corlyn Maloney, Chair of Subcomm. on Inv’r Protection, Entrepreneurship and Capital Markets, Rep. Wm. Lacy Clay, Chair of Subcomm. on Hous., Cmty. Dev. and Ins., Rep. Al Green, Chair of Subcomm. on Oversight and Investigations, Rep. Stephen Lynch, Chair of Task Force on Fin. Tech. to Mark Zuckerberg, Founder, Chairman and CEO of Facebook, Sheryl Sandberg, COO of Facebook, David Marcus CEO of Calibra, U.S. House of Rep. (July 2, 2019), https://financialservices.house.gov/uploadedfiles/07.02.2019_-_fb_ltr.pdf.

[2] Katzuji Kamei, BOJ Insiders Among Those Taking Aim at Facebook's Digital Coin, Nikkei Asian Review, (July 3, 2019), https://asia.nikkei.com/Spotlight/Bitcoin-evolution/BOJ-insiders-among-those-taking-aim-at-Facebook-s-digital-coin.

[3] Tom Wilson, Facebook's Libra Cryptocurrency Needs Deep Thought and Detail: UK Regulator, Reuters (July 2, 2019), https://in.reuters.com/article/crypto-currencies-britain-regulator/facebooks-libra-cryptocurrency-needs-deep-thought-and-detail-uk-regulator-idINKCN1TX1X1?rpc=401&.

[4] Press Release, FCA proposes Ban on Sale of Crypto-derivatives to Retail Consumers (July 3, 2019), https://www.fca.org.uk/news/press-releases/fca-proposes-ban-sale-crypto-derivatives-retail-consumers.

[5] Daniel Palmer, Blockchain Solution for FATF ‘Travel Rule’ to Keep User Data Private, Coindesk (July 2, 2019), https://www.coindesk.com/planned-solution-for-fatf-travel-rule-compliance-keeps-user-data-private.