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In February, JPMorgan Chase briefly excited bitcoin enthusiasts when it launched its own cryptocurrency, JPM Coin. But soon after the announcement, the crypto community and tech media aptly pointed out that JPM Coin is an internal token for settling transactions with JPM clients, permissioned rather than “permissionless,” and fully controlled by JPMorgan (JPM)—not so exciting to crypto flag-wavers.
In the days since June 18, Facebook (FB) has had a somewhat similar experience. The embattled tech giant announced it would launch in 2020 a new cryptocurrency called Libra (in partnership with a collection of big-name “founding members” including Visa, MasterCard, PayPal, Stripe, eBay, Uber, and Lyft) and a digital wallet called Calibra. While some analysts and research firms are bullish that Libra can bring cryptocurrency mainstream, the cryptocurrency industry mostly has questions and criticism, like whether Libra coin can be truly decentralized when Facebook execs are building it, and whether Libra’s blockchain can ever be truly open and public when there’s a carefully-selected roundtable of “members” behind it. UBS, in a note on Libra, declared, “We have more questions than answers.”
JPMorgan CEO Jamie Dimon also has questions.
“Will they follow banking rules or KYC, BSA, AML,” Dimon said in an interview with Yahoo Finance editor-in-chief Andy Serwer, “or will they not? But they obviously want to serve their clients, and that’s fine. I also want to be able to serve their clients, too. We would like to do some of it too, ourselves, and we don’t always want to be forced into someone else’s ecosystem.”
Questions about Libra’s plan for KYC/AML
Dimon is referring to “know your customer” rules (KYC) and “anti-money laundering” (AML) rules, which stem from the Bank Secrecy Act of 1970 (BSA). Any U.S. bank or financial service company holding and transmitting money on behalf of customers is required to comply with KYC and with BSA/AML.
And Dimon is right to point to those acronyms; other critics have also picked up on the fact that Libra’s white paper makes no mention of KYC, and just one mention of AML (bolding ours): “The existing blockchain systems have yet to reach mainstream adoption... Some projects have also aimed to disrupt the existing system and bypass regulation as opposed to innovating on compliance and regulatory fronts to improve the effectiveness of anti-money laundering. We believe that collaborating and innovating with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure and trusted framework underpins this new system.”
Facebook Libra coin don't need KYC. They have so much more data on the 2 billion people. Not just name, id, address, phone number. They know your family, friends, real-time/historic location, what you like... They know you more than yourself. And now your wallet too. Best AML!
— CZ Binance (@cz_binance) June 18, 2019
Instead of harping on KYC and AML, Facebook emphasizes, in multiple sections of the Libra website and the Calibra press release, that it will keep Libra customers’ financial data separate from Facebook social data. But that doesn’t really address the regulatory concerns Dimon is talking about.
Jamie Dimon: ‘Blockchain is real’
Nonetheless, Dimon sounds a lot more bullish on crypto and blockchain than he did when he called bitcoin a “fraud worse than tulip bulbs” in 2017.
“Blockchain is real. We have the JPMorgan coin blockchain. And competition is real,” Dimon told Yahoo Finance.
But he also thinks the banking system doesn’t really need cryptocurrency.
“The banking system has already built Zelle, realtime P2P, and TCH The Clearing House,” Dimon says. “We already have all that. And it’s very cheap, it’s very secure, it shares a lot of information. It goes through all the bank security systems, cybersecurity systems, KYC, BSA, AML. We’re going to have competitors... whether it’s a cryptocurrency competitor or another fintech competitor, we’re going to have competitors. I tell our people, Just don’t guess. You know they’re there. You know they’re coming. You know they want to eat your lunch. Assume it. And it might not be the ones we see. It might be the ones we don’t see.”
Facebook is very clearly one of the tech competitors that would like to eat JPMorgan’s lunch—Zuckerberg reportedly has long had ambitions of Facebook getting into banking. Libra appears to be the manifestation of those ambitions, but whether it will catch on with mainstream consumers is far from a given—even with 2.4 billion global users.
Daniel Roberts covers bitcoin and blockchain at Yahoo Finance. Follow him on Twitter at @readDanwrite.