META Meta Platforms Inc

By Valentina Pop 

BRUSSELS -- The European Union will introduce legislation aimed at preventing libra, Facebook Inc.'s proposed digital currency, from undermining Europe's single currency and being used as a money-laundering tool -- representing one of the toughest regulatory responses so far.

Valdis Dombrovskis, who is slated to stay on as vice president of the European Commission in charge of financial regulation, said Tuesday that libra posed a systemic risk to the euro, given the size of the companies that are behind the global cryptocurrency-based payments network.

"Yes, we will need to regulate libra, to supervise it on an EU level, both from the perspective of financial stability and the protection of financial investors," he told EU lawmakers.

"Financial stability, monetary stability, anti-money-laundering -- these are just a few aspects that need to be considered," Mr. Dombrovskis later added.

His comments deal a further blow to the social-media giant's ambitions to transform financial services. Lawmakers and regulators in the U.S. and Europe were quick to criticize libra after it was unveiled in June, citing concerns about how Facebook and the companies involved would protect users' privacy and stop criminals and terrorists from using it to launder money.

In September, France and Germany called for libra to be blocked, issuing a joint statement saying that "no private entity can claim monetary power, which is inherent to the sovereignty of nations."

Separately, the European Commission, which acts as the EU's main antitrust enforcer, has launched a preliminary inquiry into concerns that libra could drive out competitors. Questions on both the financial stability and the competitive aspect of the planned currency have been sent to Facebook and the Libra Association of companies backing the project. Mr. Dombrovskis said he hasn't yet heard back.

Dante Disparte, head of policy and communications for the Libra Association, told The Wall Street Journal that the organization recognized that as libra is an emerging technology, "policy makers must carefully consider how its applications fit into their financial system policies."

"The Libra Association and its members are committed to working with applicable regulatory authorities to achieve a safe, transparent, and consumer-friendly implementation of the Libra project," he said.

A Facebook spokesman said the company "will comply with applicable financial laws and regulations, including anti-money-laundering obligations". He played down competition concerns, saying that Libra "will be an open platform," and that the company welcomes competitors developing their own payment systems.

Libra forms a major part of Facebook Chief Executive Mark Zuckerberg's strategy of moving the company away from its reliance on targeted advertising on public platforms.

However, amid the governmental backlash, companies that had agreed to back libra are reconsidering their involvement. PayPal Holdings Inc. is withdrawing from the coalition Facebook assembled to launch the currency and The Wall Street Journal reported in October that Visa Inc., Mastercard Inc., and other financial partners were reconsidering their participation.

However, other companies remain committed, and on Tuesday, British telecommunications company Vodafone Group PLC said it would sign up.

Mr. Dombrovskis' plans for new regulation needs to be fleshed out in coming months, and EU member countries, including France and Germany, will have a considerable say. This would be the EU's first regulatory step regarding digital currencies, although the commission previously has warned about the risks to investors from bitcoin's high price volatility.

In parallel, some central banks in Europe are exploring their own version of digital currencies. Switzerland's central bank announced Tuesday it was partnering with the Swiss stock exchange to explore the tokenization of the Swiss franc, making digital central bank money available for trading.

Peter Rudegeair and AnnaMaria Andriotis contributed to this article.

Write to Valentina Pop at valentina.pop@wsj.com

(END) Dow Jones Newswires

October 08, 2019 09:45 ET (13:45 GMT)

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