Elon Musk is in the process of adding a payments platform to X in the US, reportedly as part of a plan to use X to replicate the WeChat model. X payments has already had money services business (MSB) licences approved in over 30 states, and it is reported that Musk is hoping to expand X payments internationally sometime soon.
With X’s licence applications being approved in the US, it is worth considering the issues for EU and UK financial regulators should X apply for licences on this side of the pond.
Musk has a history in financial services, having co-founded the fintech firm x.com in 1999, which then merged with Confinity to form PayPal in 2000. However, he also has a well-known history of controversy, including recent criticisms of the UK government as well as the alleged promotion of false information on X.
With the sources of some of the information he has allegedly been promoting potentially about to face criminal charges for their posts, and with discussions relating to categorising some far-right groups they could be associated with as proscribed terrorist groups or organisations in the UK, there is a question over how financial regulators in Europe will respond to attempts by X to become regulated in the region.
Under the AML/CTF regulations, any links identified by X stakeholders with proscribed terrorist groups or activity, which could be seen as promoting terrorism, would obviously cause serious concerns with respect to an application to the financial regulators in both the UK and EU.
There are other issues too that may give regulators cause for concern. In February, X was accused by the Tech Transparency Project (TPP) of taking money from terrorist organisations through its blue tick subscription service. X subsequently removed the ticks from the accounts, but it still comes under regular criticism from some for the lack of scrutiny and safeguards on the platform. Could this in turn, lead to regulator concerns over the level of scrutiny of customer accounts in respect to potential terrorist funding and activities of a related payments business?
Many speculate that Musk’s recent increase in messaging about the UK and EU—particularly concerning the causes and policing of the recent riots—is at least partly driven by the potential impact of the UK’s Online Harms Act and the EU’s equivalent legislation on his social media business and plans.
But if he is applying political pressure in this way, is he actually causing a serious headache for financial regulators who could soon potentially be reviewing a payments application from X? Regulators may need to ascertain the facts behind these events and allegations in order to determine the risks of granting a payments licence to X. They could already take issue with some of the accounts on X, and Musk’s own alleged activities in spreading disinformation—if true—may be seen as a reflection of his attitude towards regulation, regardless of the Online Harms Act.
There’s then the issue of convincing regulators that the control of the UK and EU entities sits within these entities themselves, rather than in the US, and whether Musk and other US stakeholders will be able to exert undue influence over their European subsidiaries.
It could be a tall order for Musk’s team to convince the UK and EU regulators that they should be approved for a payments licence, but also a headache for the Regulators to deal with the potential fallout of scrutinising the application throroughly, not to mention the potential fallout of their final decisions – whatever they decide.
Financial Regulators need to be mindful of their own reputation and the reputational risk to themselves and the financial markets of their decisions. Trying to weigh up the reputational risks of approving X as a payments business versus that of refusing authorisation is one that, I imagine, will require quite a lot of discussion.