Regulators from the banking, consumer protection, and antitrust sectors are urging Meta (formerly Facebook) to put its Novi project on hold.

Americans for Financial Reform and Demand Progress and the Open Markets Institute have called on the U.S. Department of Justice and other regulatory bodies to investigate the Novi digital wallet launched by Meta, formerly known as Facebook, to see whether Meta is accepting deposits in the absence of a banking charter approved by the Office of the Comptroller of the Currency.

Charters outline, among other things, how a bank will ensure how a bank will comply with safety and soundness regulations. Currently, Novi holds a license to operate as a money services business under U.S. federal law and has a money transmitter license in 38 states and the District of Columbia. New York regulators classify the firm as a limited-purpose trust.

Mark Zuckerberg has received backlash from senators and cautioned by regulators in a letter dated Oct 19, 2021, for launching the Novi project without waiting for approval from regulators, as Mr. Zuckerberg promised in his appearance before Congress in 2019.

Stablecoins are the pivot upon which Novi’s success is based. USDP, or Pax Dollars, was the first cryptocurrency available in the wallet and is a stablecoin pegged to the U.S. dollar. Recently Joe Biden convened a President’s Working Group on Financial Markets published a report to indicate that financial businesses seeking to make use of stablecoins should be regulated like banks. The working group’s initial interest in stablecoins arose in part due to Meta’s initial interest in the stablecoin Tether and the inability of the company Tether to back up its stablecoin with sufficient cash reserves.

Meta intended the Pax Dollars in the Novi wallet to be used in remittances between the U.S. and Guatemala, promising no fees for the service. Meta has hired Coinbase to provide custody services for the stablecoin, while Paxos is the company behind the Pax Dollar stablecoin. Paxos claims to have sufficient liquidity through cash and cash equivalents. However, little is known about how deposits are distributed, and Meta has not disclosed what it would do if Paxos were unable to meet liquidity requirements.

There was a concern raised by one member of the Open Markets Institute that Meta’s Novi pilot is another move by the company to further establish its reach into digital advertising, and monetize its users’ data.

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

The post Meta Under Scrutiny, US Watchdogs Call for Novi Pilot Investigation appeared first on BeInCrypto.

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