Today, the House Financial Services Committee will hold a hearing on Facebook’s Libra cryptocurrency and blockchain ecosystem. Yesterday, David Marcus, head of Libra, testified in front of the Senate Banking Committee garnering much criticism and little support. Expect more of the same today.
The House Committee hearing is different in the fact there will be two panels. First, with Marcus testifying in support of Libra. A second panel will provide feedback from a group of interested parties and experts.
Chris Brummer, a law Professor at Georgetown University and a frequent commentator on Fintech in general, is one of the individuals who will be testifying in front of the Committee. In prepared remarks submitted in advance of the hearing, Brummer slammed Facebook’s white paper outlining Libra calling it a failure.
In brief, Prof. Brummer had this to say:
- The Libra White Paper fails, most fundamentally, to inform potential holders in unambiguous terms that they can lose money, and that runs on the coin are possible.
- The White Paper fails to clearly disclose that Libra holders will be exposed to counterparty risk in the form of mismanagement of reserve investments.
- The White Paper fails to disclose governance risks, including the negative impact Libra Association decisions, and conflicts of interest, could have on the nature and value of Libra coins.
- The White Paper fails to disclose how the decentralized application interfaces it is envisioning could compromise the “secure, scalable, and reliable blockchain” Facebook is promising, as well as AML compliance and cybersecurity.
- Depending on how the White Paper is interpreted, Libra potentially comprises a source of systemic risk.
Brummer called his concerns “the tip of a regulatory iceberg.”
Brummer’s comments are peppered with criticism calling it muddled, contradictory, and problematic. While acknowledging Facebook’s most laudable objective of providing a payment solution for the unbanked, Brummer appears not to be much of a fan of Libra – at least in its current iteration.
The House Financial Services Committee hearing can be viewed here.
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