BoE warns Facebook, Libra not to expect unregulated free-for-all

Bank of England Governor Mark Carney. Matt Dunham/Pool via REUTERS/Files

LONDON (Reuters) – Facebook cannot expect its new Libra currency to benefit from the same unregulated free-for-all that helped the company achieve a dominant position in social media, Bank of England Governor Mark Carney said on Thursday.

The US social media company drew worldwide interest earlier this week when it announced plans to establish its own payment system, backed up by a currency it calls Libra.

“The Bank of England approaches Libra with an open mind but not an open door,” Carney says in a speech he will give in the heart of London’s financial district. “Unlike social media … the terms of engagement for innovations such as Libra must be adopted in advance of any launch.”

Carney, who will step down next January, will deliver his speech alongside finance minister Philip Hammond, who is expected to warn of the risk that a no-deal Brexit could trigger extended austerity and a Scottish vote for independence.

Hammond will also set out his vision for Britain’s financial services, at a time when both the government and the BoE are keen to ensure London retains its place as the world’s leading financial centre even after Britain leaves the EU.

Carney’s comments were part of a broader speech unveiling a major review into the future of Britain’s financial system, to cut costs for consumers, make it easier for small businesses to borrow and reduce banks’ compliance expenses. 

Cash usage is falling rapidly in Britain in favour of credit and debit cards – though some older Britons and businesses in rural communities with poor internet access still prefer cash.

If Libra comes close to meeting Facebook’s ambitions, it would be a systemically important payment system which the BoE and financial regulators worldwide would take a keen interest in, Carney said.

The company would need to meet tough standards on consumer protection and fighting money-laundering, as well as ensuring the platform boosted competition and was genuinely open so that “new users can join on equal terms”.

The BoE – which already allows some non-banks to use its payment services – said it would consult on being the world’s first major jurisdiction to allow non-banks to deposit money with it overnight, and potentially even borrow BoE funds.

“Expanding access can improve the transmission of monetary policy and increase competition,” Carney said.

These changes would also reduce the economy’s reliance on Britain’s major banks, which still dominate consumer and small business financial services, but came close to collapse during the 2008 financial crisis, costing taxpayers billions.

Carney also gave a date – 2021 – for when British financial institutions account for the risks of climate change in a ‘stress test’ of their finances. 

Climate change is a major preoccupation for Carney. Britain’s government recently announced the aim of making the country carbon-neutral by 2050, the first G7 country to do so.

The central bank governor did not address the more immediate challenge of Britain’s departure from the European Union, due on Oct. 31, or the outlook for interest rates and the broader economy.

Earlier on Thursday the BoE kept interest rates on hold at 0.75% but cut its growth forecast for the second quarter to zero, highlighting risks from global trade tensions and growing fears of a no-deal Brexit.

Carney will speak alongside finance minister Philip Hammond, who is set to warn that a no-deal Brexit would prolong austerity and risk triggering a referendum that led to Scottish independence.

(Reporting by David Milliken and Huw Jones)

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