Facebook's Libra draws old antitrust questions and new regulatory concerns

2 September 2019 8:46am

30 August 2019, by Nicholas Hirst, Lewis Crofts and Jack Schickler

Facebook's Libra has attracted the interest of the EU competition regulator, which is fitness-checking it against a few classic collusion concerns as well as some more novel regulatory theories, to judge by questionnaires it sent out this summer.

It is just the latest indication that the cryptocurrency's backers — the 28 founding members of the Libra Association — will have to go the extra mile to persuade regulators of the project’s benefits.

In questionnaires seen by MLex, the European Commission is not only drilling into concerns over potential collusion and barriers to entry, but also straying into the realms of financial services and privacy regulation to check who will regulate the cryptocurrency and what data will be collected.

The questionnaires also include multiple requests for companies' internal documents. While such demands are now common in merger reviews, it seems unusual for them to be made by the EU regulator at this stage — not least in relation to a project that remains some way off from becoming reality.

That, in itself, is a reminder that after a decade of scrutiny targeting Google and renewed interest in Facebook, the commission's antitrust officials are all too aware of how quickly a disruptive idea can become a de facto global standard that could prove impossible to dislodge or change.

Classic antitrust

The question sheets sent to Libra members — such as Facebook, Visa and Uber — throw up two traditional antitrust risks: that members will share sensitive information or raise barriers to companies that might want to join in future.

There are echoes of a 2011 inquiry into the European Payments Council, which was responsible for developing standards for the rollout of the Single Euro Payment Area and had a membership of dozens of EU banks and banking associations. Regulators were concerned that entities from outside the banking industry, such as fintech disruptors, might be excluded.

With the Libra Association, the commission wants to know how the digital-currency project will treat new fintech companies that might want to sign up.

"Please describe in concrete terms members' current and future role in selecting members of the Libra Association and (draft) rules applicable to consultations between members of the association regarding membership and terms and conditions," the questionnaire reads. It adds: "Would you object to banks or fintech companies that meet the technical requirements joining?"

Another question inquires about how the association will handle commercially sensitive information. Its members span the payments, technology, blockchain, telecom and venture capital sectors.

It stands to reason that companies such as Facebook, and card-processors with a history of tangling with competition enforcers, would avoid making such elementary mistakes.

Peering into the future

But investigators go beyond the obvious questions, drilling down in detail into the members' roles and expectations, and probing the innovation pipeline.

Not only do they want information on each member's role in creating the association and their current "status" within it, but they want to know how the company views that role changing over time. What is your "commercial rationale" for joining Libra, they inquire, before requesting internal documents to back up any explanation.

And officials dig further, asking about any products and services the members are considering developing for the envisaged platform. "Please identify and describe all Libra-backed products/services which [you intend] to develop alone or jointly and explain how these products/services will be offered," the questionnaire reads. "Please submit Internal Documents relating to these services."

They also want to know whether any members plan to exploit Facebook's substantial market position to support the rollout of their own planned offerings.

"Please explain if and how these products/services will be integrated into Facebook platforms, including WhatsApp, Messenger, Instagram and Calibra (pre-installed, integrated, standalone apps, other)." Calibra is a Facebook subsidiary focused on setting up a digital wallet for the Libra currency.

Companies may struggle to provide full answers to such questions: Libra has yet to be launched. And Facebook is likely to be the guardian of such corporate secrets.

But that will be no excuse for them to play fast and loose with their responses. Testimony to that: the commission's fine of 110 million euros ($120 million) against Facebook for misleading merger regulators about its plans to integrate its data with that of takeover target WhatsApp.

Data and GDPR

Given the intense interest of competition authorities around the globe in theories about data, and in particular its use by Big Tech, it comes as little surprise that questions about data feature prominently in the questionnaires.

The questions, however, do make clear that officials are very much at the stage of collecting information rather than exploring any concerns already discerned.

"Please identify and describe the Facebook/Libra/Calibra user data which [you] will have access to as (i) a member of the Libra Association and/or (ii) as a partner in developing related products/services," they ask. "Please explain who will own such data."

It’s notable that such questions would not look out of place in a questionnaire issued by a data-protection supervisor.

The EU’s new General Data Protection Regulation will govern the ownership and sharing of such data, and so the fresh interest of antitrust enforcers again raises questions over how these two worlds will interact.

And this is all the more significant off the back of a German court ruling last week. There, Facebook persuaded judges to suspend a decision by the country's antitrust authority against its handling of user data, with the court expressing doubts about how far a breach of privacy laws could extend to a breach of antitrust law.

Broader scrutiny

Competition regulators aren't the only ones sniffing around Libra. EU officials are keen to determine whether the digital currency might fall under the bloc’s financial-service laws, but are frustrated by a lack of information over its exact structure.

Bruno le Maire, France's finance minister, has also hinted that any currency should be subject to the same monetary strictures as are states and their central banks.

Other regulators are concerned about whether opaque online networks could be used to launder funds or beat international trade sanctions. Guidance from the Swiss financial-markets regulator, out on Monday, suggests it is prepared to go beyond international norms in applying laundering rules to cryptocurrency.

That matters because the Libra Association will have its headquarters in Geneva — even if Calibra is based in California.

Swiss banks won’t be able to process payments to cryptowallet providers unless they can identify the owners of the wallets and make sure they aren’t on sanctions lists, the Finma guidance said.

Under current plans, Calibra users will, in any case, have to prove who they are with government-issued ID: but the remarks show Facebook users certainly won’t be cut any slack compared with more conventional payees.

ABA 2019