Facebook says it won't push Libra until regulators approve. But there are caveats

The hearings will bring lawmakers closer to determining the fate of an effort that could fundamentally change financial and payment systems globally. The Libra announcement also spurred a broader conversation about the need to regulate cryptocurrencies, something lawmakers now look to be in a hurry to do.

Marcus, who headed up Libra for Facebook, is scheduled to testify before the Senate banking committee on Tuesday and the House financial services committee on Wednesday. He will likely be asked about privacy, money laundering, consumer protection and the stability of the financial system, all issues lawmakers say Libra raises. Marcus' testimony suggests the company is willing to work with legislators to address those concerns.

"Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals," Marcus said in his prepared remarks, which were released Monday.

But a company spokesperson clarified this means Facebook will not release any products for using Libra, such as its Calibra wallet, without regulatory approval. The decision on whether to launch Libra by early 2020 as expected will be up to its governance body, the Libra Association, a coalition of 28 companies and nonprofits that includes Facebook.

But urgings from Marcus and Facebook that they'll work with lawmakers on Libra, and meetings company representatives have already had with regulators, have not stopped some from expressing strong objections.

"Allowing big tech companies to take over the payment system or position themselves to influence monetary policy would be a huge mistake and is surely a threat to our democracy," Senate banking committee ranking member Sherrod Brown, a Democrat from Ohio, said during Powell's semi-annual testimony last week.

Lawmakers worry that with access to Facebook's 2.4 billion users worldwide, Libra could gain a rapid and global buy-in to the largely unregulated cryptocurrency sector.

Facebook says it already has some measures in place to address their concerns. The company has also stressed it won't be the sole manager of Libra — instead, it will be run by the independent Libra Association.

Like many of its products, Facebook has positioned Libra as a way to help people build community. The company says Libra will enable cheaper, faster money transfers and will promote inclusion for people around the world who don't have access to a bank account.

Libra is also a tool to drive revenue, both by bolstering Facebook's existing lines of business and creating new ones.

Marcus wrote in a Facebook post that Libra will enable more commerce on the company's platforms, which he expects will encourage more spending by advertisers. The company will also charge some money transfer fees through its Calibra wallet app, though they'll be lower than traditional remittance fees. He also said Facebook's Calibra unit will look to offer additional financial services in the future, though the company hasn't said what exactly that would mean.

"If we earn people's trust with the Calibra wallet over time, we will also be in a position to start offering more financial services, and generate other revenue streams for the company," Marcus wrote.

This has spurred fears that Facebook wants to take on the role of a bank, without being regulated by one.

"Facebook Libra's 'virtual currency' will have little standing or dependability," Trump tweeted Thursday. "If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International."

Experts say Facebook providing banking services would raise a number of questions: Would the company be required to pay interest on holdings in the Calibra wallet, the way banks are? Would Calibra have to report users' holdings to the relevant tax authorities?

"It's an unfair playing field, if they don't have to follow those rules that banks have to follow," said Avivah Litan, an analyst for Gartner focused on blockchain.

In a press conference Monday, Treasury Secretary Steven Mnuchin said government is worried that Libra could be used for money laundering, human trafficking, purchasing of illegal drugs and other illicit uses, concerns that have been raised with other digital assets.

"We will not allow digital asset service providers to operate in the shadows," Mnuchin said.

Facebook has said it will abide by Know Your Customer and Anti-Money Laundering rules, regulations meant to protect against financial crimes that banks are subject to follow. And it plans to give law enforcement access to analyze transactions on the Libra network. Many existing cryptocurrency businesses also have mechanisms for preventing such illegal uses.

Legislators have also raised concerns about user privacy, given Facebook's troubled reputation, and consumer losses if Libra's value fluctuates. Facebook says its plans for the project answer those concerns.

Other cryptocurrencies are challenging to regulate because they are run on decentralized public networks with many members, meaning in many cases there's no one company to go to to shut them down. Libra may be easier because it was developed by a US company and will be run by a designated organization, according to Nicholas Pappageorge, an analyst with market intelligence firm CB Insights.

"There's no way to really stop all the other cryptocurrencies, but with Facebook, they're operating in the traditional legal apparatus," Pappageorge said "They need to get some approval."

But that doesn't mean it will be easy for regulators.

"I don't know the right way to get at this," Powell said during his testimony when asked about regulating Libra. "This is a question we're going to have to get our arms around. It's one of the reasons we're working on it now."

In the decade they've been around, cryptocurrencies have proven difficult to regulate, in part due to their decentralized and anonymous nature. Last September, Congressman Warren Davidson, a Republican from Ohio, hosted a roundtable of around 50 representatives of Wall Street, venture capital firms and the cryptocurrency industry to consider regulations for the sector. Several bills have been proposed since then, though none have been successful yet.

Both the Fed and the Treasury Department's Financial Stability Oversight Council have set up working groups to evaluate the plans. Mnuchin said Monday that there are also working groups within the G7 and G20 focused on cryptocurrency and, in particular, how to tax digital assets.

Part of the problem is that it's not clear which US regulatory agency, if any, would be in charge of regulating Libra and Calibra.

"It isn't obvious at all from our current regulatory system that we have in place what we need to assess or oversee this," Powell said, adding that he doubts Facebook and the Libra Association will be able to launch the digital currency in the coming months as planned.

Powell even suggested creating a new regulatory agency to oversee cryptocurrencies or consumer data privacy.

Regardless of what regulators decide, more clarity on the rules will help crypto and blockchain companies, said Bill Shihara, CEO of blockchain trading platform Bittrex. He said his company spends hundreds of thousands of dollars trying to parse out and comply with regulations from various state and US federal agencies when it wants to launch a new token on its platform. This makes it harder to compete with exchanges in areas that have clearer regulations like Europe.

"What I like about what's happening with these Facebook hearings is it's forcing regulators to provide certainty for us," Shihara said. "I would be okay with one regulator for blockchain, or defining at what point do we have to go engage with different regulators on blockchain and cryptocurrency projects."