Facebook’s Calibra could be prudentially regulated

Financial Review,
If the proposed global cryptocurrency Libra gets off the ground and Facebook launches its Calibra digital wallet in Australia – to be known as Calibra – the US technology giant will need to meet minimum capital requirements and face other prudential regulation.
The Australian Prudential Regulation Authority said proposals from the Council of Financial Regulators sent to the government relating to oversight of so-called “stored value facilities”, or digital wallets, will require services involving more than $50 million to be subject to “safeguarding and minimum capital” requirements, as well as “regular reporting requirements”.

Facebook’s Calibra wallet will be regulated as a “stored value facility” under a new proposal submitted by the Council of Financial Regulators to the federal government. 

APRA said it was likely the proposed regime, which the Australian Securities and Investments Commission will also oversee, would apply to Facebook, which is proposing fiat currency be converted into a new cryptocurrency known as Libra, which will be valued against a basket of global currencies. It is the first time Australian regulators have made public details involving potential regulation of Facebook’s proposals, announced last June.

However, the proposed regime is not likely to apply to another US tech giant, Apple, because its digital wallet, Apple Pay, merely stores a digital representation of bank-issued cards, and facilitates payments from nominated accounts where banks still hold funds as deposits.

APRA, in a submission to the Senate select committee on fintech and regtech, did not specify how much capital Facebook might be required to hold. However, under the existing regime applying to ‘purchased payments facilities’, PayPal, the only entity regulated under the regime, has to hold the greater of 5 per cent of the value of stored  liabilities or $3 million.

1.65 at 10/9/19

The minimum capital requirements under the proposed new framework haven’t been determined, and would be subject first to industry consultation.

“Under this proposal APRA’s role in the framework would be to oversee wallets that are widely used as a means of payment and store significant value for a reasonable amount of time, for example, potentially Facebook’s Calibra proposal,” APRA said.

Facebook has said it would only launch Libra and Calibra if the system met regulatory requirements around the world, and it was continuing to lobby governments to have it approved. The main jurisdiction regulating the Libra Association, of which Facebook is a member but does not control, is Switzerland.

While the Reserve Bank of Australia said in December it remains unclear whether Libra would operate as a deposit, an exchange-traded fund, or a money-market fund, APRA told the Senate committee it was “seeking to develop a new APRA principles-based prudential standard that simplifies the regulatory requirements and is able to accommodate a range of business models that have emerged. The timing of this will be dependent on the broader government response.”

Under the proposed “stored value framework”, which has been developed in response to the 2014 financial system inquiry and 2018 Productivity Commission report into competition in the financial system, controversial regtech Isignthis and London-based foreign exchange unicorn Transferwise could also come under the new regime if they are holding more than $50 million of stored value in their wallets. If the amount held is less than $50 million, ASIC becomes the sole-regulator of the wallets.

Pointing to a supportive stance on the arrival of new technologies, APRA said it wants to simplify the risk management, governance and IT requirements for providers of digital wallets.

It said the Council of Financial Regulators, which comprises the RBA, APRA, ASIC and Treasury, “are reviewing this framework to reduce complexity, increase competition and foster innovation, leading to improved consumer outcomes”.