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Democratic senators threaten regulatory scrutiny on Libra payment providers

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Democratic senators threaten regulatory scrutiny on Libra payment providers

For Facebook Inc. and the Geneva-based Libra Association, hits just keep on coming.

Since the social media giant unveiled plans to launch a digital currency, called Libra, four months ago, it has been met with backlash around the globe. The latest blow came from Democratic Sens. Brian Schatz of Hawaii and ranking member of the Senate Banking Committee Sherrod Brown of Ohio. The pair sent letters Oct. 8 to the chief executives of Visa Inc., Mastercard Inc. and Stripe Inc., the payments providers that have said they will invest $10 million each in a consortium to govern the coin. Schatz and Brown not only urged the companies to proceed with caution, but they also threatened regulatory scrutiny on all of the companies' payments activities, not just those related to Libra.

"If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related payment activities, but on all payment activities," the senators wrote. The letters publicly express the harshest criticism from members of Congress toward the payments companies associated with the project. Libra is designed to be a stable digital cryptocurrency that will be backed by a reserve of real assets.

The letter comes as several key players contemplate pulling out of the project altogether.

PayPal Holdings Inc. became the first company to formally withdraw from the Libra project on Oct. 4. Days earlier, reports had surfaced that the payments providers were reconsidering their commitments to the digital currency project amid regulatory backlash. Visa, Mastercard and Stripe did not respond to a request for comment.

Following PayPal's withdrawal, Dante Disparte, head of policy and communications for the Libra Association, said the journey to launch Libra will be "long and challenging."

"Commitment to that mission is more important to us than anything else," Disparte said in an emailed statement following PayPal's withdrawal. "We're better off knowing about this lack of commitment now, rather than later."

The Libra Association is working to formalize partnerships with Libra's now 27 remaining founding members. That charter could reportedly take place as early as Oct. 14 in Switzerland, where the nonprofit organization is looking to be licensed as a payment system. When first announced, Libra was expected to launch in 2020.

But in a September letter to Rep. Emanuel Cleaver II, D-Mo., Calibra head David Marcus said Facebook will delay Libra's launch "until we have addressed all US regulatory concerns." Libra Association's Disparte also noted in an emailed statement the organization's commitment not to launch "until questions and concerns by regulators are addressed."

Those questions and concerns do not seem to be abating.

The head of the U.S. House Committee on Financial Services in June called on Facebook to cease work on the cryptocurrency project, citing Facebook's recent data privacy scandals as cause for concern. The European Commission in October asked Facebook and Libra to answer questions related to the project's financial stability, as well as risks of money laundering and data privacy. Now, Brown and Schatz's letters continue to stress issues with Facebook.

"Facebook is currently struggling to tackle massive issues, such as privacy violations, disinformation, election interference, discrimination, and fraud, and it has not demonstrated an ability to bring those failures under control," the senators said. "You should be concerned that any weaknesses in Facebook's risk management systems will become weaknesses in your systems that you may not be able to effectively mitigate."

Facebook CEO Mark Zuckerberg is scheduled to testify before the House Financial Services Committee in a hearing Oct. 23.