The Facebook-backed Diem Association is withdrawing its application for a payments system license from the Swiss Financial Markets Authority (FINMA) and will move its primary operations to the U.S. from Switzerland, it said Wednesday.
The association said its subsidiary, Diem Networks U.S., will instead register as a money services business with the Treasury Department's Financial Crimes Enforcement Network (FinCEN) and run a blockchain-based payment system that allows the real-time transfer of U.S. dollar-backed stablecoins.
La Jolla, California-based Silvergate Bank will become the exclusive issuer of the stablecoin, Diem USD, and will manage the currency reserve, the association said.
The moves represent a "simplifying" of plans, the Diem Association said Wednesday. When Facebook announced Diem, formerly named Libra, in June 2019, it was envisioned as a token backed by a global basket of currencies. But the initiative has faced pushback from government officials in the U.S. and Europe, who cited privacy issues and warned the currency would become a target for money laundering and terrorist financing.
"This shift is consistent with Diem's initial strategic focus on the United States and reflects Diem's consideration of the evolving digital currency regulatory environment in the US," the Diem Association said in a statement.
House lawmakers in December introduced a bill aiming to reduce risks from stablecoins — calling out the Facebook-backed project by name. The bill would require stablecoin issuers to obtain a banking charter and get approval from the Federal Reserve and Federal Deposit Insurance Corp. (FDIC) in addition to any other applicable regulators.
"While our plans take the project fully within the US regulatory perimeter and no longer require a license from FINMA, the project has benefited greatly from the intensive licensing process in Switzerland and the constructive feedback from FINMA and more than two dozen other regulatory authorities from around the world convened by FINMA to consider the project," Diem CEO Stuart Levey said in a statement.
The timeline for the rollout of the project's initial pilot remains unclear. The Financial Times in late November reported Diem could launch as early as last January, but that was dependent on FINMA sign-off, which is now no longer part of the plan.
Silvergate CEO Alan Lane said the bank was inspired by Diem's technology and commitment to building a regulatory-compliant payment system that "offers a safe and secure way to move money."
"We believe in the future of U.S. dollar backed stablecoins and their potential to transform existing payment systems," he said in a statement.
While Silvergate Bank is one of just a few U.S. banks that serve crypto-related businesses, the space is growing.
In the two years since Facebook announced its plans to launch a digital currency, the attention and adoption of digital assets have swelled, signs the industry may be gaining more credibility.
JPMorgan Chase extended banking services to crypto exchanges Coinbase and Gemini last year, while the Office of the Comptroller of the Currency (OCC), under the leadership of former Acting Comptroller Brian Brooks, issued a series of crypto-friendly guidance.
BNY Mellon said in February it is developing a client-facing prototype for a multi-asset digital custody and administration platform. Goldman Sachs in March said it would relaunch its crypto trading desk. And last week, a Citi executive said that bank, too, is considering offering its clients cryptocurrency trading, custody and financing options.