Banks avoid Facebook's Balance project

US and European banks are getting closer to Libra, Facebook's project on new cryptocurrency, for fear of upsetting regulators and cannibalizing their own digital currency projects

In the two weeks following the announcement of the creation of a new digital currency by Facebook, the banks were silent about the project that would risk breaking their role as guardian of the global financial system.

"We are still learning what it is and trying to determine where we are, are we an adversary, a partner or should we ignore it?" , Said a person familiar with the project approach of one of the world's largest banks.

On Wall Street, the city of London and the European financial centers, senior executives of the sector evoke a host of obstacles to participation, while some also criticize the way Facebook has tackled the project up to now. .

No bank was on the initial list of the Libra badociation's other 27 partners, who will oversee the currency, although David Marcus, who runs the project on Facebook, said he wants to "absolutely and firmly deny the fact that we have approached banks and banks said no.

"We had conversations with the banks. We still have conversations with the banks. And I expect that the launch of this project, banks are members, "he told Information.

However, bank executives tell a different story. At least one bank, the ING of the Netherlands, responded to Facebook's first contact with a polite "no thanks".

Several other members of senior management have stated that their future involvement would be very difficult, whether as an active member of the Libra Association or by helping people convert traditional money into coins of the Libra Association. Balance.

Mike Corbat, head of Citigroup, recently said that while he was a "strong supporter of crypto-currencies and their underlying blockchain technology, Citi's ability to participate was limited,

"The problem with cryptocurrencies is the opacity of the sources of money," he said, referring to the anti-money laundering (AML) standards that banks are required to maintain. "It would not be in our power to take or send these funds to the name [of people who hold them]. "

Meanwhile, several banks are continuing their plans to accelerate payments, which, according to some people, would overtake the Libra initiative.

Mastercard, part of the Libra project, is working with six Nordic banks to put in place a payment system that allows for real-time transfers and can be used in several currencies and in several countries.

Paul Stoddart, president of Mastercard for New Payment Platforms, said he hoped to see "more initiatives like this one in the world where groups of countries or regions would be economically more closely integrated. "

In the United States, The Clearing House, a payment company backed by a coalition of 25 major banks, including JPMorgan Chase, Bank of America and Citigroup, offers real-time domestic payments over a network launched in 2017, which already connects half of the country's population. deposit accounts.

And in June, 13 of the world's largest banks, including UBS, Lloyds Banking Group and MUFG, announced plans to launch their own wholesale banking digital component.

A senior executive from one of the banks involved said, "Facebook is right to say that cross-border payments are clumsy and complicated and that we have to go through too many counterparties, but banks involve them." and will solve this problem and solve it quickly. . "Banks expect the first institutional transaction with the" universal settlement coin "to take place within a year and could be a cross – border transaction.

At the same time, another US bank's innovation manager said the industry needed to understand more, including the purpose of the Balance coin, the regulatory environment, and the technical fundamentals of the front-end system. to be able to engage in the project.

"We will talk to them [Libra] very soon, "he added. "There is a lot of skepticism, but there are huge names that have given $ 10 million, there are enough names of well-known organizations that have put $ 10 million to say a part. "

A senior executive from a third major US bank said that he did not think banks should do their best to make sure that Libra attracts the same control of your customers' knowledge and the fight against money laundering than traditional payment networks, which would entail huge costs for the project. .

"If this thing has the scale of 2 billion people who can move money out of the financial system (without AML / KYC), it makes fun of the system," he said. "We will not have to convince them in Washington. . . the regulators are there, they will make them respect the same standards as everyone else. "

The executive added that Facebook, which recently hired a prominent Standard Chartered lobbyist, had already mismanaged the regulatory element by announcing plans without first engaging regulators.

When JPMorgan Chase developed plans for a much more limited digital play, they had lengthy conversations with regulators before making them public, asking them for informal advice on what would be acceptable to them, said one close to process.

The Trump administration's financial regulation regime is much more sensitive to these iterative conversations than Obama's, who "considered the banks as an enemy," he added.

The head of innovation at a major European bank said his participation was hampered by the fact that "regulation does not allow us to be very enterprising in this area".

David Marcus, the Facebook executive who runs the Libra project, acknowledged the regulatory concerns in an article published Wednesday on his blog. He promised a "collaborative process" with regulators and said that replacing cash with a digital network "with regulated access and exit ramps with appropriate customer knowledge practices" could help limit financial crime.

A senior executive of a fourth major US bank said his company could still participate but that the road ahead was long.

"L & # 39; money [initial $10m investment] here would not be the most material obstacles they have [the sums] are not very important in the order of things, "he said. "[The test would be] is it regulated, and is it really solving a problem or just ticking a box of near-innovation, we should be comfortable with the use cases, what they would do beyond Beyond regulation, regulation is like a minimal bar. "

For some banks, even checking all these boxes does not go far enough. "We could say that it is a competitor of our competitive advantage. . . the ability to transfer money worldwide for customers of our network. It would be rather unusual to go beyond that, to compete with yourself, in many ways.

Report by Laura Noonan and Robert Armstrong in New York, Nicholas Megaw and Stephen Morris in London