New bill would make Facebook's cryptocurrency a security under the law, inviting greater regulation

Facebook Chairman and CEO Mark Zuckerberg testifies before the House Financial Services Committee on "An Examination of Facebook and Its Impact on the Financial Services and Housing Sectors" in the Rayburn House Office Building in Washington, DC on October 23, 2019.

Mandal Ngan | AFP | Getty Images

A bipartisan team of senators introduced a bill Thursday that would make Facebook's cryptocurrency libra a security under the law. That classification would likely invite even greater regulation and scrutiny to the project, which Facebook has insisted is a digital payments system.

Two members of the House Financial Services Committee, Reps. Sylvia Garcia, D-Tex., and Lance Gooden, R-Tex., proposed the "Managed Stablecoins are Securities Act of 2019" on the day of a committee hearing on the role of big data in financial services. Garcia explicitly called out libra in a statement announcing the bill, saying that it and other managed stablecoins "are clearly securities under existing law."

"Bringing clarity to the regulatory structure of these digital assets protects consumers and ensures proper government oversight going forward," Garcia said in the statement.

Gooden said the bill is necessary to help consumers understand the financial assets they are buying.

"In what are called 'managed stablecoins', we have trusted brands marketing digital assets to consumers as secure and stable," Gooden said in a statement. "Everyday investors need to know they can trust the issuers behind their financial assets. This bill would bring them the security they deserve by applying the laws we use to regulate financial securities to this new breed of digital currencies."

Facebook and the Libra Association, the group that will govern the cryptocurrency, did not immediately respond to a request for comment.

Facebook has consistently pushed back on the notion that libra is a security under the law. Asked what exactly a libra is at a congressional hearing in July, Facebook's crypto chief David Marcus said it would be somewhat akin to PayPal in certain transactions and denied it is a security or exchange-traded fund.

It makes sense for Facebook to avoid having libra categorized as a security, which would introduce a host of regulatory hurdles. The company has committed to not being a part of any launch of libra without U.S. regulators' approval. Asked by Rep. Carolyn Maloney, D-N.Y., at an October hearing about which regulators Facebook would engage, CEO Mark Zuckerberg said the company is committed to getting all appropriate approvals from regulators who have jurisdiction over libra.

Facebook has argued that the cryptocurrency would be relatively stable because it will be backed by a basket of currencies including the U.S. dollar. The company has worked to distinguish libra from securities and other cryptocurrencies like Bitcoin. Speaking at The New York Times DealBook Conference earlier this month, Marcus said he thinks of Bitcoin as "digital gold" rather than a currency, adding that it's likely avoided some regulation because it's not seen as a medium of exchange.

Garcia and Gooden both questioned Zuckerberg on libra at the committee hearing back in October. Garcia was among the congresspeople calling for Zuckerberg's testimony over his deputies, believing "he would be the one to have the answers" on libra, but walked away from the hearing feeling "disappointed."

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