• Meta is being scrutinized, and US watchdogs are calling for an investigation into the Novi Pilot

  • Banking, consumer protection, and antitrust regulators are urging Meta (formerly Facebook) to halt its Novi project.

    Americans for Financial Reform and Demand Progress and the Open Markets Institute have asked the US Department of Justice and other regulatory bodies to look into the Novi digital wallet launched by Meta, formerly known as Facebook, to see if Meta is accepting deposits without a banking charter approved by the Office of the Comptroller of the Currency.

    Charters, for example, outline how a bank will ensure compliance with safety and soundness regulations. Novi currently holds a license to operate as a money services business under federal law in the United States, as well as a money transmitter license in 38 states and the District of Columbia. The firm is classified as a limited-purpose trust by New York regulators.

    Senators chastised Mark Zuckerberg, and regulators warned him in a letter dated October 19, 2021, for launching the Novi project without waiting for regulatory approval, as Mr. Zuckerberg promised in his appearance before Congress in 2019.

    Novi is concerned about liquidity issues.

    Stablecoins are the foundation of Novi’s success. USDP, or Pax Dollars, was the wallet’s first cryptocurrency and is a stablecoin pegged to the US dollar. Joe Biden recently convened a President’s Working Group on Financial Markets, which published a report indicating that financial businesses seeking to use stablecoins should be regulated similarly to banks. The working group’s initial interest in stablecoins stemmed from Meta’s initial interest in the stablecoin Tether and Tether’s inability to back up its stablecoin with sufficient cash reserves.

    Meta intended for the Pax Dollars in the Novi wallet to be used in remittances between the United States and Guatemala, promising no service fees. Meta has hired Coinbase to provide custody services for the stablecoin, while the Pax Dollar stablecoin is managed by Paxos. Paxos claims to have adequate liquidity in the form of cash and cash equivalents. However, little is known about how deposits are distributed, and Meta has not stated what it would do if Paxos failed to meet its liquidity requirements.

    One member of the Open Markets Institute expressed concern that Meta’s Novi pilot is yet another attempt by the company to expand its reach into digital advertising and monetize its users’ data.

    In recent months, Meta has been embroiled in some concerning controversy, as internal documents leaked to the Wall Street Journal by whistleblower Frances Haugen revealed Meta’s apparent indifference to concerns about how Instagram was affecting the mental health of teen girls.

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