Senate Banking Committee Hearing on Facebook’s Digital Currency
Senate Banking Committee
“Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations”
Tuesday, July 16, 2019
Key Topics & Takeaways
- Regulatory Framework: Marcus responded that he and his team are fully committed to working with the Treasury, the G7 working group, the Federal Reserve, the Internal Revenue Service (IRS) and other U.S. regulators to appropriately address their concerns and that until concerns are addressed, the Libra network will not roll out the currency. He said that Calibra will register with the Financial Crimes Enforcement Network (FinCEN), have proper regulatory oversight and will be backed by a one-to-one reserve.
- Data Privacy: Marcus said the intent of Libra is to create a wallet-to-wallet payments system to serve those who do not typically engage in the traditional financial system. He said Calibra is working to create policies for the highest privacy standards, which will be shared with Congress once they are complete.
- Money Laundering and National Security: Marcus said the Calibra wallet will have consumer fraud protections in place, including a customer service team to address fraud claims, just as financial companies have in their structures. He added that the Calibra network will have a team of individuals on board who will keep the currency in compliance with know your customer (KYC) and anti-money laundering (AML) policies, and Calibra will implement on- and off-ramp procedures.
Witness
Opening Statements
Chairman Mike Crapo (R-Idaho)
In his opening statement, Crapo expressed concerns about data protection, privacy, money laundering and terrorism financing regarding Facebook’s proposed digital currency, Libra. Crapo continued that there are concerns regarding what consumer protections will apply and potential implications for consumers with respect to financial loss from fraud or the project’s failure, how individuals’ data will be protected, how the Libra ecosystem interacts with the Bank Secrecy Act and other existing anti-money laundering regulations, and ways that Libra could threaten financial stability and the steps that could be taken preemptively to mitigate those risks. Crapo stated that despite these uncertainties, Facebook’s goals are “commendable” and their ambitions could deliver material benefits to the underbanked. Crapo raised concerns that Libra will extend Facebook’s “massive” reach and influence, and how the platform will protect user’s data. He added that congress must ensure the data collection process is not abused and that individuals have rights with respect to their data.
Ranking Member Sherrod Brown (D-Ohio)
In his opening statement, Brown said that Facebook is “dangerous,” manipulates its users, and does not deserve the public trust following its scandals. Brown said that the “last thing we need” is to consolidate more power within corporations and allow Facebook to “experiment with people’s bank accounts.”
Testimony
David A. Marcus, Head of Calibra, Facebook
In his testimony, Marcus stated that the process of implementing Libra is just beginning and that Facebook will not release Libra, “until we have fully addressed regulatory concerns and received appropriate approvals.” He described Libra as a way for money to move around the world in an easy, accessible, and efficient way for anyone with a smartphone or internet access. Marcus explained that many diverse companies will make up the Independent Libra Association which will govern the Libra blockchain network, administer the Libra reserve, and establish rules of the road that prioritize privacy and consumer protection. Marcus stated that once fully formed, the safeguards implemented by the Libra Association will protect against money laundering, terrorism financing, and other financial crimes. Marcus concluded that if digital currency is not created in the U.S. it could be created somewhere else with “dramatically different” values.
Question & Answer
Regulatory Framework
Sens. Thom Tillis (R-N.C.), Pat Toomey (R-Pa.), Mike Rounds (R-S.D.), Mark Warner (D-Va.), Doug Jones (D-Ala.), Jon Tester (D-Mont.) and Crapo asked how Calibra will structure their rules to follow the U.S. regulatory framework and tax systems. Marcus responded that he and his team are fully committed to working with the Treasury, the G7 working group, the Federal Reserve, the Internal Revenue Service (IRS) and other U.S. regulators to appropriately address their concerns and that until concerns are addressed, the Libra network will not roll out the currency. He said that Calibra will register with the Financial Crimes Enforcement Network (FinCEN), have proper regulatory oversight and will be backed by a one-to-one reserve.
Governance and By-Laws
Sens. Tina Smith (D-Minn.) and Brian Schatz (D-Hawaii) asked how the Libra network will operate. Marcus said the Libra network consists of a council of 100 different members, one of whom is Facebook, with a board of roughly 10 members and a chair. He said all members of the council will operate with the intent of wallet interoperability and data portability. Marcus said the council is working through the by-law process and will make them public once they are complete.
Data Privacy
Sens. John Kennedy (R-La.), Martha McSally (R-Ariz.), Krysten Sinema (D-Ariz.), Bob Menendez (D-N.J.), Chris Van Hollen (D-Md.), Schatz, Brown, and Crapo asked how Libra would protect data and why Facebook should be the lead on this issue. Marcus said the intent of Libra is to create a wallet-to-wallet payments system to serve those who do not typically engage in the traditional financial system. He said Calibra is working to create policies for the highest privacy standards, which will be shared with Congress once they are complete. Marcus said it is important for the U.S. to be the lead on blockchain and to set standards for the technology to comply with the U.S. the regulatory and financial systems. He added Calibra will collect government-issued identification for authentication purposes, which will not be shared with Facebook.
Money Laundering and National Security
Sens. Catherine Cortez Masto (D-Nev.), Tom Cotton (R-Ark.), Tillis, Tester, Jones, Menendez, Sinema, and Schatz asked how Libra will be structured to address concerns of money laundering, terrorism financing, and other bad actors. Marcus said the Calibra wallet will have consumer fraud protections in place, including a customer service team to address fraud claims, just as financial companies have in their structures. He added that the Calibra network will have a team of individuals on board who will keep the currency in compliance with know your customer (KYC) and anti-money laundering (AML) policies, and Calibra will implement on- and off-ramp procedures. Marcus added that Calibra will continue to work with the Treasury to address sanctions-related policies, will respect travel policy rules and will comply with the Office of Foreign Assets Control (OFAC) checks.
For more information about this hearing, click here.