Swiss regulation has changed, Libra has become a “hot potato”?

Recently, the Swiss financial market regulator (FINMA) told the media that Facebook's digital currency project Libra must accept Swiss anti-money laundering review, and the process of the project must be legally challenged before it can be carried out.

"We are the most stringent in the world in the regulation of cryptocurrency money laundering." Mark Branson, chairman of FINMA, highlighted.

Prior to this, Facebook selected Switzerland as the registration site for Libra project operators, which is friendly to cryptocurrency in Switzerland; but Branson's words show that Switzerland's attitude is becoming more and more stringent.

Not only that, but FINMA has since said that it will work with regulators in other countries to jointly oversee the Libra project.

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Why did Switzerland “face” in a few months, and Libra, who wants to be a world-class cryptocurrency, once again became a “hot potato”?

State of cryptocurrency

"The State of Encrypted Currency", Federal President John Schneider Oman once called Switzerland.

This title is not a hole in the wind. The origin of Ethereum is located in the small town of Zug, in the north-central part of Switzerland. The first manufacturer of the Bitcoin ATM machine, Lamassu, also moved its headquarters to Zug at the beginning of this year.

According to public information, the state of Zug is located in the north-central part of Switzerland, with a population of less than 30,000, but it is the richest city in Switzerland and the world. In 2016, the per capita GDP reached US$163,000, thanks in part to its Loose financial regulatory policies and a low tax environment.

Zug

It is worth mentioning that, for a long time, Zug has been favored by cryptocurrency and blockchain startups because of its “compatibility” attitude. According to PricewaterhouseCoopers data, one of the world's largest auditing companies, four of the top ten ICO companies in 2017 are located in Zug; and according to incomplete statistics, as of 2016, Zug has more than 300 cryptocurrencies. the company. This also gives Zug a reputation as a “crypto valley”. Even in 2017, Switzerland established the “Encryption Valley Association” in Zug, with members including PricewaterhouseCoopers, blockchain company ConsenSys, and media group Thomson Reuters. By 2018, Zug State also introduced blockchain technology into the referendum process. The rapid development of cryptocurrency in Zug is the most vivid manifestation of Swiss traditional financial institutions and regulatory authorities, which are “open-minded” to cryptocurrency and blockchain technology. In July 2018, SIX Group, a major Swiss financial services provider, announced that it is building an infrastructure platform for digital asset trading, clearing and regulation, and the SIX Swiss Exchange of the SIX Group in March this year. Trading of Equity Derivatives (ETPs) based on Ethereum has begun.

In August of this year, FINMA, the agency responsible for regulating all financial activities in Switzerland, issued a press release stating that bank licenses have been issued to two new blockchain service providers, SEBA Crypto AG and Sygnum AG. According to Muggles, this marks The two companies will become cryptocurrency banks, helping them to better “operate for tokenized digital securities” in the future.

From the government to traditional financial institutions to regulatory authorities, Switzerland has been committed to integrating cryptocurrencies and related blockchain technologies into the financial system of the country as a whole, and even in all aspects of people's lives.

For this reason, Facebook announced in June this year that its main body of cryptocurrency project Libra is located in Geneva, Switzerland.

In the face of this world-class project, Switzerland has always had a positive and welcome attitude.

Pierre Maud, head of economic development in the Canton of Geneva, said that the Geneva authorities were “very excited” to work with the project; the Swiss Federal Ministry of Finance’s International Finance Secretariat (hereafter referred to as “the Secretariat”) also pointed out that Switzerland is willing to be active. Promote the Libra project to help Switzerland play a role in “an ambitious international project”.

At the hearing on the Libra project in July this year, Libra project leader David Marcus responded to the question from US lawmakers about the Libra headquarters in Switzerland. He also said that Switzerland "can help the Libra project internationalize and Switzerland (encryption) The regulatory rules on the currency side are clearer."

David Marcus's point of view is correct. Switzerland's regulatory attitude toward cryptocurrency is loose, but its regulatory rules are actually clearer.

According to the Muggle faction, as early as February 16 last year, FINMA issued a guide related to the cryptocurrency ICO, according to the basic use of the token and whether it is tradable or transferable, FINMA will ICO token There are three types: payment type tokens, utility type tokens and asset type tokens.

Payment-type tokens (ie cryptocurrencies): These tokens can be used as a means of payment, both current and future, for obtaining products or services, or as a means of transferring money and value. Such tokens are subject to anti-money laundering laws;

Functional tokens: These tokens are tokens designed to provide digital access to an application or service;

Asset-based tokens: These tokens represent assets, such as the shares of an entity, the share of a company or source of income, or the right to pay dividends or interest. In terms of their economic function, such tokens are similar to equity, bonds or related derivatives. Such tokens need to be subject to securities laws.

A special ICO guide was introduced to guide and regulate the development of the cryptocurrency industry. Such a breakdown and clear regulatory rules, except Switzerland, there is no second country in the world to do so. Most sovereign countries, including the United States, have not yet defined a clear definition of cryptocurrencies. In addition to refusing to recognize the monetary value of cryptocurrencies, these countries have failed to classify cryptocurrencies into a subdivided financial sector. Careful and in-depth control. Switzerland's attention and loyalty to cryptocurrency and blockchain technology can be seen.

"Litchma" in the US financial community

Libra was in a regulatory storm in the United States when Switzerland remained active and welcoming to Libra.

Just one month after Libra's inception, the US Senate and the House of Representatives held hearings in succession. At the meeting, the members of the House of Representatives were fiercely suspicious of Libra and Facebook's inquiries.

In fact, the strong resentment of most senators and congressmen does not take into account the impact that the Libra project itself will have on the real world. According to the Muggle, they are more of the main behind the Libra project. Trader – Facebook's own suspicions.

Aggressive House of Representatives Alexandria Ocasio Cortez

In March 2018, Facebook was exposed to the "Cambridge Data Disclosure" incident, involving personal privacy data of 50 million Americans, which accounted for 1/6 of the US population.

It was from that time that the United States went from the government to the ordinary people and gradually lost confidence in Facebook. This suspicion continued on Libra.

In terms of personal data and privacy protection, Marcus said at the hearing that Libra's privacy regulator is the Swiss Federal Data Protection and Information Commissioner (hereafter referred to as "FDPIC").

But the face is that the FDPIC side quickly responded that Facebook has not made any contact with them, and they also hope to get more information about what personal data Libra wants to get and how to handle such private data.

If you only consider personal data and privacy protection issues, whether it is Facebook or Libra, its attitude and response to the problem are slightly blurred and vague.

Of course, there will be more rational officials who do not focus on the scandals before Facebook, but rather Libra's influence on national sovereign currencies, financial institutions, payment systems, and so on.

Marcus responded that Libra would not threaten the current fiat currency status and would not launch Libra without the supervisor's full agreement. However, US regulators do not buy this statement. According to the Muggle School, from the private to the regulatory level, from government agencies to non-profit organizations, the overall attitude of the United States to the Libra project is almost one-sided opposition. As a result, Switzerland, which was originally “compatible and packaged”, was affected and re-examined the project.

"World Police"

If Facebook scandals, personal data and privacy protection issues are the main reasons why Switzerland is hesitant about Libra, what really changed Switzerland's attitude is the two personal visits by US regulators.

At the second hearing of Libra, the chairman of the US House Financial Services Committee, Maxine Moore Waters, pointed out that it is necessary to implement a comprehensive ban on Libra's draft legislation. "Large companies must not establish, maintain or operate a project. Digital assets, which are defined as currencies with functions such as exchange media, accounting units, and value storage."

On August 24th, this “less friendly” woman went to Switzerland with a visiting delegation to meet with Swiss regulators such as FINMA, the Secretariat and FDPIC. I wanted to know how the Swiss authorities would supervise Libra and ask more. About the status and scale of the project.

The specific content of the conversation was not announced, but then the Swiss response seems to prove that the content of this conversation is definitely not a good thing for the Libra project.

On August 26th, FINMA published a guide on regulatory requirements for blockchain payment for financial service providers, pointing out that cryptocurrency exchanges and wallet service providers need to comply with existing anti-money laundering rules and “not allow blockchain-based businesses”. The model bypasses the existing regulatory framework, especially the fight against money laundering and terrorist financing."

At the same time, the SNB also began to tighten contact with the Swiss government authorities on the Libra project.

A week later, in a speech at the University of Basel, SNB Governor Thomas Jordan said that the stable currency linked to the French dollar foreign exchange dollar would threaten the stability of Switzerland's existing financial system. Although it is not clear which specific stable currency, but at this moment, Libra is the easiest to associate.

By September 10th, US regulators have visited Switzerland again. The U.S. Treasury and Swiss regulators interviewed in the Swiss capital of Bern, clearly hoping that Switzerland would strengthen its regulation of cryptocurrencies and adopt strict cryptocurrency regulations for the Libra project.

From the previous "know the situation" to the now slightly compulsory tone, the United States seems to be getting stronger and stronger on Libra's issue.

Switzerland quickly responded to the US Treasury's "health". The next day FINMA announced that Libra must accept Swiss anti-money laundering review and accept the legal inquiry before starting the project. At the same time, FINMA issued a supplemental material based on stable currency, stating that the Libra project must seek approval from regulators in the form of a payment system.

The precondition for approval is that the returns and risks associated with reserve management will be fully borne by the Libra Association, and the risk cannot be passed on to the holders of Libra Stabilizing Coins; on the third day of the US Treasury visit to Switzerland, FINMA stated that Work with financial regulators in other countries to ensure seamless regulation of the Libra project.

At this point, Libra has become the target of financial regulators in the world's major sovereign countries, and even the open-minded Switzerland has become cold.

Is it forced to be helpless or is there another hidden feeling?

Intriguingly, despite the shift in cryptocurrency and blockchain attitudes of Swiss regulators, this is limited to Libra and does not affect other companies.

On September 16, according to Businesstimes, Seba and Sygnum, two banks with cryptocurrency licenses, will officially operate in Switzerland next month.

However, this "face change" in Switzerland is obviously directly affected by the two visits by US regulators.

In addition, given the sheer size of Facebook, Swiss regulators are also more cautious about it. FINMA's CEO Mark Branson has previously revealed to the media that "a huge amount of financial transactions will bring reputational risks, and this is true all over the world."

But he later said that Switzerland would not be willing to “be a second-rate financial center”, and the key to resolving this “reputation risk” is “whether the regulation of Switzerland is credible and whether there is a regulatory framework for large players.”

As for the indirect factors affecting Switzerland's attitude, it may be glimpsed from the reaction of neighboring countries to Libra.

French Finance Minister Luno Le Meyer will never accept Libra's release in continental Europe; Bundesbank Governor Jens Weidmann said that "stabilizing coins" may undermine the bank's deposit absorption capacity and its business model; Carney pointed out that once Libra loses its credit, it will be heavily sold, which will impose a huge burden on the financial system.

In the almost unanimous opposition of European countries, Switzerland, which is Libra's registered place, has to stand up and make a statement.

According to the Muggle School, in addition to the two main factors mentioned above, the global economic environment is changing rapidly, the complexity of relations with the EU, the uncertainty of financial markets are increasing, and the development of blockchain and cryptocurrency-related technologies is not yet fully mature. It may be a factor that has led to a shift in the attitude of Swiss regulators.

And how will Libra, the “giant baby” born in the global opposition wave, born less than 100 days old, behave?

First, Libra positions itself as a stable currency in the white paper, and if it can persuade US regulators to believe that Libra can help countries stabilize inflation and lower their production costs by fixing a fixed ratio with other countries, it will not threaten The status of the dollar, perhaps the future US regulators will change their attitude towards Libra.

That's why Facebook, the founder of the Libra project, hired lobbying companies a lot after the hearing to help convince officials who opposed the Libra project, including the former assistant to the chairman of the Senate Banking Committee.

Secondly, the US regulators are worried not only about the status of the dollar, but whether Libra will have money laundering or monopoly is still mentioned at the same height. For this point, the Libra Association issued a statement last week saying it would “comply with the Anti-Money Laundering Guidelines (AML)” and that if “members choose to provide financial services on the Libra network, the member will also abide by these guidelines.”

Thirdly, the Libra Association currently includes well-known companies such as Visa, PayPal, Uber, and Coinbase. However, in the wave of opposition, these members not only did not express their support, but also revealed to the outside world the meaning of withdrawing from the association. Seven company executives, including the CEO of Visa, said that when they joined the Libra project, the agreements they signed were not binding, so it would be easy to withdraw from the association.

This also reflects on a certain level that there is no consensus between the members of the Libra Association and Facebook, perhaps because Facebook wants to "lead to leadership before 2019 (in the Libra project)." If Libra wants to go further, it must resolve the contradiction between leadership and other members of the association.

Finally, the position of the Swiss regulatory authorities has made the Libra Association an embarrassing situation. Will it be “global wandering” like the currency security to evade supervision, or learn from Coinbase and deepen cooperation with supervision? These are all issues that Zuckerberg and Marcus need to consider in depth.

Text: a trip

Source: Muggle Pie (ID: muggle_block)

Original article, unauthorized reproduction is prohibited.

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