- FacebookCEO Mark Zuckerberg will testify before the House Financial Services Committee on October 23 to answer questions about his company’s impact on the financial services and housing sectors.
- The committee will likely ask Zuckerberg about the Facebook-created cryptocurrency network called Libra that it announced in June. It’s expected to launch as soon as 2020.
- David Marcus, the Facebook executive spearheading the Libra project, testified before the committee in July.
- The committee will likely ask Zuckerberg about a range of issues, such as how the currency will be regulated when it launches and what protective measures will be put in place to prevent criminals from using the currency in nefarious ways.
- Notably, however, Facebook won’t be directly in charge of the Libra network and its rules. That responsibility will rest with the Libra Association, an independent, a not-for-profit organisation based in Switzerland comprised of 21 companies.
- The hearing will also address the social networking giant’s impact on the housing sector, coming after the Department of Housing and Urban Development filed charges in March alleging that Facebook violated the Fair Housing Act through its targeted advertising.
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Facebook CEO Mark Zuckerberg will take the hot seat yet again on Wednesday when he testifies before the House Financial Services Committee to answer questions about his company’s impact on the financial services and housing sectors.
The hearing comes as Facebook continues to push a new cryptocurrency-based payments system, called Libra, that is still moving forward despite heavy scrutiny from lawmakers and the departure of key founding partners.
Earlier this month, committee chairwoman Congresswoman Maxine Waters (D-CA) announced that Zuckerberg will testify as the sole witness during the hearing. David Marcus, the Facebook executive that’s been spearheading the Libra project through a subsidiary called Calibra, testified before the committee in July.
Back then, lawmakers grilled Marcus over a variety of concerns – including how the currency would be regulated, why Facebook should be trusted given its previous privacy blunders, how apps designed for the currency would be approved and vetted, and what measures will be put in place to prevent criminals from using Libra in nefarious ways, among other issues. A draft bill called the “Keep Big Tech Out of Finance Act” was also discussed at the hearing, which would prevent a platform company like Facebook from becoming a registered financial institution in the United States.
Now, officials are likely to probe Zuckerberg on many of these same issues, and will probably press for specific answers about Facebook’s plans for expanding into the financial services sector.
A big question
One question that’s likely to come up again is whether or not Facebook and the Libra Association will commit to complying with all regulatory requirements in the United States before launching Libra anywhere in the world, says Katharina Pistor, the Edwin B. Parker professor of comparative law and director for the Centre on Global Legal Transformation at Columbia Law School.
Marcus has said that the Libra network will not launch without the proper regulatory oversight, and until all governmental concerns have been satisfied. But when Waters asked Marcus to pause its plans to roll out of Libra until regulators could take a look, he didn’t explicitly commit.
The committee will also probably ask Zuckerberg about the assets and reserves on which the Libra currency will be based. The Libra Association’s whitepaper, which describes the technology and approach, says that it will be backed by real assets such as a basket of bank deposits and short-term government securities held in the Libra Reserve.
But it’s unclear how the Libra Association would handle a situation in which demand for the Libra cryptocurrency would outstrip the supply of safe assets to back its value, Pistor says. That’s a lingering concern, given Facebook’s size and reach, and thus the potential popularity of Libra.
Zuckerberg may not have the answers
Zuckerberg, however, may not be able to provide all of the answers that lawmakers and regulators are looking for. That’s because it’s the Libra Association – an independent, not-for-profit Swiss organisation comprised of 21 companies – that will govern the network and hold the final decision-making authority. In other words, Libra may have been born from Facebook, and Facebook may be a part of the Libra Association, but it’s not where the buck stops.
Facebook is expected to hold a leadership role in the Libra Association through 2019. But once the Libra network launches, Zuckerberg’s company will be just another member of the association. Facebook will have the same privileges, commitments, and financial obligations as its other members, which includes Lyft, Uber, Spotify, Vodafone, and Andreessen Horowitz.
The project took a step forward last week when the 21 members of the organisation officially signed on to the association’s charter during a meeting in Geneva, Switzerland. The association also formalized its council, elected its board of directors, and appointed members of its executive team – all despite the fact that several high-profile partners recently backed out of the project, including Paypal, Visa, Mastercard, and Stripe.
The formalization of the association means Facebook may not be positioned to answer specific questions about the concerns lawmakers have with Libra.
“He can of course, and I’m sure he will, share his own views,” Marcus said to a small group of journalists last week regarding what Zuckerberg would be able to address during Wednesday’s hearing. “But he cannot engage or commit to anything on behalf of the association because he doesn’t have the power to do that.”
Examples of the types of questions Zuckerberg will be able to speak to include perspective on why Libra was created and the intentions behind it, Marcus said. But if Wednesday’s hearing is anything like the one from July, lawmakers will be pressing for specific answers and commitments from Zuckerberg.
While Libra has dominated the news cycle over the past several weeks, lawmakers have other questions for Zuckerberg, too.
The hearing will also address the social giant’s impact on the housing sector, coming after the Department of Housing and Urban Development filed a claim in March alleging that Facebook was “encouraging, enabling, and causing housing discrimination” by allowing would-be landlords to restrict who could see housing ads on the basis of race, colour, sex, familial status, and other factors.
While Facebook has taken steps to reform its housing ads policies, tamping down on the kinds of abuse alleged by the HUD, the committee will likely question Zuckerberg on what it’s doing to prevent discrimination on the platform.
Facebook’s scale is the heart of the issue
While the committee is holding the hearing to address Facebook’s impact in two different sectors – housing and financial services – the concerns can both be traced back to Facebook’s size and influence. Facebook has built an advertising empire on its massive user base of 1.59 billion daily active users and 2.41 billion monthly active users.
The company’s ability to scale quickly is exactly what has regulators and lawmakers concerned about Libra, even though Facebook won’t be the one governing the network. But given Facebook’s role in developing the idea for the Libra network and holding a leadership position as it prepares for launch, it could be difficult to convince regulators and lawmakers to view Facebook as just another member of the association.
“Stepping back from that, it’s going to be difficult to say the least,” said Pistor. “Facebook will remain the elephant in the room for whatever is going to happen. Because without Facebook, it’s infeasible that this is going to work.”