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Bank of England fires warning to Facebook on cryptocurrency

The Bank of England has warned Facebook that its global digital currency Libra must meet the "highest standards" if it is to be allowed in the UK.

The Bank's financial policy committee (FPC), which is tasked with identifying potential risks in the financial system, set out rules of engagement on cryptocurrencies during a wide-ranging meeting that also covered Brexit preparations.

Minutes showed policymakers remained concerned about "entrenched" uncertainty over the UK's departure from the EU and the damage that was inflicting on the economy.

Image: The Bank of England's FPC is effectively the risk watchdog for the UK's financial system

While the FPC maintained its position that the UK banking system was ready to withstand a no-deal Brexit, it said EU authorities still had work to do to prevent disruption to cross-border financial services in that event.

Its verdict on Libra was the most comprehensive to date and was released just a day after European authorities announced plans to draw up new rules for digital currency payment services.

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The Bank said it was planning to apply existing regulations to Libra for now but warned that "the terms of engagement for innovations such as Libra must be adopted in advance of any launch".

The FPC said: "Libra has the potential to become a systemically important payment system.

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"The FPC judges that such a system would need to meet the highest standards of resilience and be subject to appropriate supervisory oversight."

It added: "UK authorities should use their powers accordingly".

Facebook announced in June that it was setting up a partnership, named the Libra Association, alongside global payment and online firms with the aim of launching a digital currency in 2020.

However, the plans have hit opposition from regulators worldwide over the potential for Libra to become a major risk for the global financial system.

Other concerns include data protection and financial safeguards.

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Image: PayPal has pulled out of the Libra Association

PayPal pulled out of the scheme earlier this month and others, reportedly including Visa and Mastercard, are understood to be getting cold feet.

The Bank said its worries extended beyond the cryptocurrency itself with a need for "end-to-end resilience" to be established.

It said: "The resilience of the proposed Libra system would rely on the stability of not just the core elements of the Libra Association and Libra Reserve, but also the associated critical activities conducted by other firms in the Libra ecosystem such as validators, exchanges or wallet providers."

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