Government officials raise concerns about Facebook cryptocurrency

Officials at the Department of Finance have raised concerns about Facebook's new cryptocurrency, Libra, in relation to money-laundering, taxation, data protection and other issues.

Documents obtained under the Freedom of Information Act highlight concerns raised by a working group that was established in the department in March 2018 to monitor cryptocurrencies, stablecoins and Central Bank digital currencies.

The group has been tracking and sending weekly updates on Libra to Ed Brophy, the chief adviser to Minister for Finance Paschal Donohoe, since the end of June.

A detailed working paper on Libra by the group, dating from August, outlines a number of issues with the currency.

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“Concerns were almost immediately expressed centred on the stability of Libra, taxation, anti-money-laundering/counter-terrorism financing, consumer protection and safeguarding assets, data protection, and systemic risks and effects on monetary policy,” it said.

“While the reserve means Libra is likely to be less volatile than other cryptocurrencies, it will still fluctuate in value as exchange rates fluctuate. The reserve may be invested in low-volatility assets and designed for value preservation, but this does not guarantee stable values.”

A separate summary document notes that “importantly, no banks have joined the association” and that “ultimately the success of the initiative will depend on the rate of adoption, and the willingness of consumers to use cryptocurrency as an alternative means of payments”.

Regulation unclear

It is unclear how future regulation of Libra will work, with the department saying it was “premature” to have concrete measures at this time, although they are monitoring the situation closely.

It notes that two European Banking Authority reports state that crypto assets typically fall outside the scope of current EU financial services regulation, while there are exceptions to those classed as financial instruments.

The European Commission is currently conducting an analysis to assess whether action is appropriate and feasible in relation to crypto assets.

The working paper also notes that, when implemented in January 2020, the fifth anti-money-laundering EU directive will stipulate that “providers engaged in exchange services between virtual currencies and fiat currencies, as well as custodian wallet providers, will come within the scope of the AMLD [anti-money laundering directive]”.

A spokeswoman for the Department of Finance said it was “premature to suggest new policy recommendations” for cryptocurrencies.

"The department and the working group are fully engaged with working groups set up by the G7 and G20 to monitor Libra, and will consider recommendations in line with developments at an EU and global level," she added.

The spokeswoman said that, if released, Libra is likely to be first made available to Facebook and WhatsApp users. "Through the working group, the department has been monitoring developments in cryptocurrencies and stablecoins and will continue to consider any potential risks that Libra may pose to the Irish economy and consumers," she added.