Canada: Libra: Issues Surrounding The Announcement Of Facebook's New Cryptocurrency

Last June 18, Facebook announced the creation of a new subsidiary, Calibra, which will be developing a digital wallet for a new cryptocurrency, Libra. Libra will be powered by a blockchain technology going by the same name.1 Once created, the digital wallet will allow users to send, receive, spend and save Libra2 using mainstream applications such as Messenger and WhatsApp, as well as a new standalone app.

The stated goal behind this new cryptocurrency's development is to create a global currency for the billions of people, both individuals and businesses, without access to traditional financial services and capital.3 Facebook announced that Libra will be developed and supervised by an independent non-profit organization in Geneva – the cryptocurrency industry's home base4 – whose mission it will be to achieve the goal described above. This organization, known as the Libra Association, counts major corporations such as MasterCard, PayPal, Visa, Uber, Spotify and Facebook among its founding members.

The launch of a cryptocurrency with a potentially disruptive effect on the financial industry by a corporation like Facebook, which has been the target of some criticism lately, suggests that this might be a good time for an update on the legal and business issues relating to Libra's pending arrival.

What are cryptocurrencies?

It bears repeating that Libra, much like any cryptocurrency, will be a digital currency that only exists online and operates using peer-to-peer technology.5 However, unlike certain well-known cryptocurrencies such as Bitcoin, Libra will be a stable currency (or "stablecoin"), which means that it will be backed by a reserve of assets. More specifically, Libra will be backed by a collection of low-volatility assets, such as bank deposits and government securities in currencies from stable and reputable central banks, which should protect Libra against major value fluctuations.6

Another fundamental aspect of cryptocurrencies is that their operation is intrinsically linked to blockchain technology. In fact, cryptocurrencies can only be bought and sold using blockchain7 or other similar technology. Blockchain is a distributed ledger, or database, shared across a computer network,8 where an electronic signature is attributed to every new piece of information and eventually forms new "blocks" in the chain of historical records, with each block eventually being "sealed" by cryptographic signature. The fact that this ledger is distributed throughout the network's various systems and is equipped with different consensus (or validation) protocols makes it very difficult to defraud.9

Challenges associated with Libra's arrival

With Facebook's potential to expose over 2.3 billion users to cryptocurrency, it will be interesting to see what impact Libra's launch will have on democratizing cryptocurrencies among the general population. Financial institutions need to keep a close eye on this possibility or risk losing their market shares to cryptocurrency transactions. The Libra project's ambitious scope could also have a positive effect on the entire blockchain industry by forcing it to shift from a new technology to a mature one that presents prospects of going mainstream.

The future minting of such a mainstream cryptocurrency does raise a few concerns, though. Not only is there no guarantee that Libra will be successful and commercially sustainable, the underlying legal issues of launching this type of cryptocurrency make its seamless international use uncertain.

First, although Calibra promises not to disclose its users' account information or financial data to Facebook or a third party without their consent,10 Facebook is currently being heavily criticized for mismanaging its users' private data.11 Consequently, some of the issues Facebook will have to contend with are the level of public trust in this cryptocurrency and potential disputes over the management of personal data. Facebook's entry into the financial sector comes just as the corporation's growing market power has prompted the U.S. government to consider an antitrust probe.12 Obviously, a multinational that closely manages a global cryptocurrency risks drawing the attention of regulators worldwide.

Finally, Calibra and the Libra Association will have to navigate a shifting regulatory framework that is poorly adapted to the use of cryptocurrencies in Canada. For instance, although Canada's tax rules apply to transactions that use cryptocurrencies, the federal and provincial deposit insurance regimes do not extend to cryptocurrencies themselves.13 This means, among other things, that tax collection mechanisms will need to be developed for crypto-currency transactions, and Libra users will have to contend with the risk of losing their Libra savings.

What is more, Staff Notices 46-307 and 46-308 of the Canadian Securities Administrators (CSA) stipulate that businesses issuing cybercurrencies may, under certain circumstances, be deemed distributing securities. These businesses must be familiar with the securities legislation and make sure that they comply with the fundamental securities law obligations, including prospectus requirements or exemptions, if they intend to acquire capital by means of an initial cryptocurrency offering.14 Finally, several major Canadian banks have banned the use of their credit cards for cryptocurrency transactions,15 which certainly represents a constraint for Facebook and these banks' clients who might be interested in using Libra.

It is worth noting that because Calibra's initial version should allow merchants to accept payments in Libra, businesses of all shapes and sizes should start considering whether or not they will accept this cryptocurrency as a form of payment (perhaps even integrating applications like Messenger and WhatsApp into their online business activities), and inform themselves on the legal obligations that result from accepting cryptocurrencies as a form of payment.

This latest Facebook initiative as well as Apple's launch of a new credit card in the U.S. market are only the most recent examples of the web giants' growing interest in the financial sector. The vast quantities of data these web giants have amassed combined with their growing interest in the financial sector might prompt some financial institutions to rethink their business models.16

The author would like to thank William Provencher-Campeau, Sean Cohen and Arvin Khodayari for their help in preparing this legal update.

Footnotes

1. "Coming in 2020: Calibra, A New Digital Wallet for a New Digital Currency" (June 18, 2019), online: Facebook Newsroom (https://newsroom.fb.com/news/2019/06/coming-in-2020-calibra/) [perma.cc/3FSR-LBQ7] ["Calibra"].

2. Ibid.

3. "Whiter Paper", online: Libra Association (https://libra.org/en-US/white-paper/?noredirect=1%3E#introducing-libra [perma.cc/9W58-GU9T] ["White Paper"].

4. Matthew Allen, "Why did Facebook's crypto project choose Geneva?" (May 24, 2019), online: SWI (https://www.swissinfo.ch/eng/libra-networks_why-did-facebook-s-crypto-project-choose-geneva-/44987018) [perma.cc/J43E-UWL7].

5. "Bitcoin and beyond: Five things to know about cryptocurrency", online: RBC Wealth Management (https://www.rbcwealthmanagement.com/ca/en/research-insights/bitcoin-and-beyond-five-things-to-know-about-cryptocurrency/detail/) [perma.cc/G4PT-HUQM].

6. Tom Wilson, "Explainer: 'Stablecoins' in the spotlight as Facebook unveils Libra cryptocurrency" (June 18, 2019), online: Reuters (https://www.reuters.com/article/us-crypto-currencies-explainer/explainer-stablecoins-in-the-spotlight-as-facebook-unveils-libra-cryptocurrency-idUSKCN1TJ1T6) ; "The Reserve", online: Libra Association (https://libra.org/en-US/about-currency-reserve/?noredirect=1#the_reserve) [perma.cc/CT8D-783L].

7. "An Introduction to Bitcoin and Other Cryptocurrencies", online (pdf): BMO Nesbitt Burns (https://nesbittburns.bmo.com/pictures/account-mark.hougen@nbpcd.com/New%20Publications/Latest%20Info/BitcoinAndOtherCryptocurrencies(BMO).pdf) [perma.cc/BY5X-H3SF].

8. Brant Carson et al., "Blockchain beyond the hype: What is the strategic business value?" (June 2018), online: McKinsey Digital (https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/blockchain-beyond-the-hype-what-is-the-strategic-business-value) [perma.cc/NQ2R-LA64].

9. Ibid.

10. Supra note 1.

11. See Katie Paul & Anna Irrera, "Facebook's cryptocurrency ambitions face privacy concerns, political backlash" (June 18, 2019), online: Reuters (https://www.reuters.com/article/us-facebook-crypto/facebooks-cryptocurrency-ambitions-face-privacy-concerns-political-backlash-idUSKCN1TJ0TN) [perma.cc/54SH-H96B].

12. Diane Bartz & Jan Wolfe, "U.S. moving toward major antitrust probe of tech giants" (June 3, 2019), online: Reuters (https://www.reuters.com/article/us-usa-technology-antitrust/u-s-moving-toward-major-antitrust-probe-of-tech-giants-idUSKCN1T42JH) [perma.cc/H7AD-2FXB].

13. Financial Consumer Agency of Canada, "Digital currency" (last modified on January 19, 2018), online: Government of Canada (https://www.canada.ca/en/financial-consumer-agency/services/payment/digital-currency.html) [perma.cc/GEB5-5T8M].

14. Canadian Securities Administrators' Staff Notice 46-307: Cryptocurrency Offerings, AMF CSA SN 46-307 (August 24, 2017) at pp. 4-6.

15. Nathan Reiff, "Canada Banks Ban Users From Buying Cryptocurrency" (April 11, 2018), online: Investopedia (https://www.investopedia.com/news/canada-banks-ban-users-buying-cryptocurrency/) [perma.cc/BK8A-LL8Y].

16. Autorité des marchés financiers, "Rapport annuel sur les institutions financières 2018", (June 5, 2019) at p. 18.

About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

Law around the world
nortonrosefulbright.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions