In a written responses to questions about Facebook’s Libra stablecoin, the European Commission highlighted that Libra cannot proceed in the EU until there is legal clarity and said Libra’s current legal status is unclear. The EC’s approach is likely to be regulation rather than a ban and it currently has a public consultation in advance of legislation.
The requirement for legal clarity was outlined in a statement on December 5 last year.
In November last year, a member of parliament representing Malta, Roberta Metsola, asked about a timeline for assessing the legal status of Libra, noting that the “the Commission stated that it was carrying out a preliminary assessment with the European Securities and Markets Authority and the European Banking Authority”. Metsola was not part of the 23 person group asking about banning Libra.
Executive Vice President of the European Commission, Valdis Dombrovskis, responded in writing this week without providing a specific timescale. He said that Libra’s legal status is unclear, and it sent Libra a set of questions. Dombrovskis noted that Libra was evolving and hence a moving target, so at the moment, the EC does not have sufficient information to establish its legal status.
There are rumors that Libra is considering switching away from a basket of currencies to a US Dollar backed currency, according to TheBlock.
Meanwhile, Dombrovskis stated: “risks raised by ‘stablecoin’ arrangements should be subject to clear and proportionate regulatory and oversight framework.”
Public crypto-asset consultation
Dombrovskis also used the opportunity to highlight that stablecoins are a subset of crypto-assets, the term used by the BIS to reference digital assets, not just cryptocurrencies. In December last year, the EC initiated a public consultation into crypto-assets, which is open until March 19.
In response to this consultation, we reported on the French regulator AMF‘s publication of a document seeking legislation to encourage digital assets.
MPs ask: will Libra be banned?
At the same time, the EC EVP responded in a similar fashion to another question from 23 members of parliament (MPs) who raised concerns about Libra, including money laundering and if it could threaten central bank currencies. They asked whether the cryptocurrency would be regulated or simply banned.
He noted that EU law already addressed anti-money laundering for virtual currencies and that EU Member States had a deadline of January 10 to implement it. As an aside, it is this law that has encouraged 40 German banks to express an interest in becoming digital asset custodians.
Additionally, Dombrovskis’ response stated: “to compete globally, Europe should embrace technological innovation, including in the financial sector. Crypto-assets present opportunities for cheap and fast payments. At the same time, it is important to consider the risks. In addressing risks, it is important to differentiate between smaller-scale activities and global ‘stablecoin’ initiatives such as Libra.”