Ref. Ares(2021)3541459 - 28/05/2021
Meeting with Global VP Nick Clegg and
representatives of Facebook
17 March 16.30 - videoconference
Scene Setter
Bio
Facebook has taken a strategic decision to move into finance by the creation of
Facebook Financial (aslo called ‘F2’). Facebook announced their objective to
reorganise and consolidate their payment services activities in a business line,
“Facebook Financial”, plans which they also presented to Sean Berrigan in a call
earlier this year. They still have plans to launch a wallet service for the EU and are
currently in discussion with supervisors in a number of EU MS to get the
necessary licenses (Facebook Payments already holds an e-money license in
Ireland). Facebook confirmed to us that the wallet would only carry traditional e-
money (authorised under the e-money directive), and only once MiCA is in place
they would consider extending the services to crypto-asset covered by MiCA
provisions on crypto-asset service providers, just as the US dollar-Diem would not
be accessible to EU consumers through the Novi wallet before such approval.
Diem/Novi (more under background)
Facebook has initiated and taken a leading position in the DIEM Association which
strives to create a global ‘stablecoin’, called the “Diem” (formerly: “Libra”). The
project states to aim at the 1.7 billion “unbanked” individuals in the world, providing
financial inclusion and frictionless cross-border money remittance. Facebook has a
worldwide customer base of 2.4 billion users, and would be a leading wallet
provider for Diem with their “Novi” wallet.
The Commission and Council in December 2019 issued a Joint Statement on
global ‘stablecoin’ arrangements. The Council and the Commission stated that “no
global "stablecoin" arrangement should begin operation in the European Union
until the legal, regulatory and oversight chal enges and risks have been
adequately identified and addressed”. On 24 September 20191, the Commission
adopted a legislative proposal on Markets in Crypto Assets (MiCA), which contains
proposed legislation for stable coins such as Diem.
In recent meetings with the Commission, Facebook Financial/Facebook has
confirmed that the dol ar-Diem, and the Novi wallets offered by Facebook, would
not al ow EU consumers to hold dol ar-Diem until the implementation of the current
MiCA proposal and subsequent requirements are deemed to be met by them. This
does not preclude the Novi wal et from offering other products to EU consumers,
for example traditional e-money (e-money is an electronic store of monetary value
on a technical device that may be widely used for making payments. The device
acts as a prepaid bearer instrument which does not necessarily involve bank
accounts in transactions).
After MiCA comes into place, the dollar-Diem, if deemed to be targeting European
consumers, would appear to meet the definition of an e-money token and would
need to establish a legal entity in the EU and thus fol ow the rules governing e-
money tokens as they are laid out under MiCA, providing a 1:1 redemption right.
The treatment of so-cal ed ‘stablecoins’ continue to be the most heavily discussed
topic in the negotiations on MiCA, lead in part by France, Germany, Spain, Italy
and the Netherlands who believe there should be tight regulations on these.
The EP rapporteur, Stefan Berger, is also promoting tight restrictions for issuers of
so-cal ed stablecoins, highlighting specifically the role of the ECB with regard to
put forward binding opinions in case of concerns regarding monetary policy.
1 https://ec.europa.eu/digital-single-market/en/legal-and-regulatory-framework-blockchain.
First key messages
Crypto-assets
I am very happy to have this catch-up with you and to get some
insight on your views of our ongoing work on digital finance and
hopeful y get an update on your own work regarding financial
services. I understand that Facebook Financial has many projects
underway and would be keen on learning more.
Our strategic objective is to ensure that the EU financial sector
embraces al the opportunities offered by the digital technologies
and digitalisation, while ensuring proper mitigation of the
associated risks. These are the main pil ars of our digital finance
strategy, published in September.
Being innovation friendly while mitigating the risks is also one of
our Markets in crypto-assets proposal (MiCA) and the proposal for
market infrastructures using the DLT (distributed ledger
technologies). .
Negotiations on the legislative proposals on crypto-assets (MiCA
and the pilot regime for market infrastructures using distributed
ledger technologies) are off to a good start. We look forward to
maintaining and upbeat legislative tempo in the year ahead.
In Council, Member States have concluded several in-depth
reviews of the MiCA proposal and from my exchanges with the
Portuguese Presidency, I am confident that good and timely
progress wil continue.
I was glad to learn of your decision to await the beginning of Diem
operations and products in the EU until the appropriate framework
(MiCA) is in place. We wil continue to do our utmost to ensure
MiCA arrives as quickly as possible.
However, our political message remains the same: you should not
start your operations until MiCA is in place. In the same way, if
Diem is distributed in the EU, it wil have to meet the requirements
under MiCA.
You know very wel that some of our Member States are concerned
about the potential significance of so-called ‘stablecoins’ and the
possible risks to monetary policy transmission, monetary
sovereignty and financial stability.
Our proposal tries to introduce the necessary safeguards in order
to mitigate these risks, but ensure that we stil promote responsible
innovation, also taking into account work at international level.
Digital Euro
As you also know, in the EU, we are advancing our thoughts on the
potential of a ‘digital euro’, which could be a complement, not a
replacement, to cash and private sector payment solutions. This is
key to ensuring that the euro remains fit for the digital era.
The ECB and the European Commission services are jointly
reviewing a broad range of policy, legal and technical questions
emerging from the possible introduction of a digital euro.
We believe the digital euro could bring benefits for EU households
and businesses. Pros and cons need to be careful y analysed
before making any decision on issuance. This is a long-term
project and may take a number of years.
Commission Call for Advice (only if needed)
Now, the digital finance file of course goes further than just crypto-
assets. Technology companies – large and smal – are increasingly
entering financial services.
In February the Commission launched a cal for advice to the
European Supervisory Authorities. We want to better understand
how new players and business models are changing risks in our
financial system, and if regulators and supervisors have the
necessary tools to cover these risks.
Should the need arise, we stand ready to propose amendments to
our legislation on that basis.
Background
Latest developments regarding Diem
Libra changed its name to Diem on 1 December 2020, to provide an autonomous
and independent image. It announced its “focus on aspects of concern to regulators
and western governments, including sanction controls and financial crime”, according
to Reuters.2 We note that these specific concerns are actual y most loudly voiced by
the US Treasury Department. Concerns from European authorities relate much more
to financial stability, investor and consumer protection and market integrity. The
foundation and its whol y-owned subsidy are headquartered in Switzerland3 even if its
principal agents appear to be based on the East Coast.
The latest stated plan is to focus on the dollar-Diem, which indicates a focus on
countries using the dol ar, including dollar denominated remittances and cross-border
payments, but does not prohibit European consumers from accessing the dol ar-Libra
now or after the application of MiCA.
Under MiCA, stablecoins like Diem can be offered in the EU or admitted to trading on
a trading platform for crypto-assets in the EU only if they are offered by an entity
established in the EU. Currently, this is not the case because the Libra Association is
established in Switzerland. Moreover, such entity would need to be authorised by a
national financial supervisor. Authorisation can be refused where there is a serious
threat to financial stability, monetary policy transmission or monetary sovereignty.
There is an obligation to ensure the prudent management of the reserve assets.
Every issuance of asset-referenced tokens shal be matched by a corresponding
increase of the reserve of assets. Lastly, MiCA also sets up a comprehensive
framework for providers of wallets and other crypto asset services.
Late last year, Diem confirmed that they would initially only launch a USD-
denominated coin. We understand that the decision not to launch a Euro-
denominated coin initial y was intended to address the joint statement, and await the
outcome of the MiCA legislative process.
Facebook is fol owing the legislative process on the Markets in Crypto Asset
Regulation (MiCA) closely and has recently submitted a response to the public
feedback period after our legislative proposal was published. They welcomed MiCA
in principle, offered close cooperation with relevant authorities and encouraged quick
implementation.
2 https://de.reuters.com/article/facebook-cryptocurrency/facebook-backed-digital-coin-libra-
renamed-diem-in-quest-for-approval-idUSL1N2IH0HG.
3 https://www.diem.com/en-us/white-paper/#the-libra-association.
Electronically signed on 28/05/2021 16:53 (UTC+02) in accordance with article 11 of Commission Decision C(2020) 4482