Facebook's $5 billion settlement with the Federal Trade Commission (FTC) marks a turning point for privacy enforcement by the agency, officials claimed on Wednesday.
In a press conference, a group of FTC commissioners and enforcement officials hailed the deal as a comprehensive settlement that will deter future infractions by establishing a privacy regime at the scandal-marred social media firm. Facebook (FB) shares were down 0.09% to $202.17 on Wednesday afternoon; the company reports its second-quarter earnings after the close.
TheStreet will be will be live-blogging Facebook's second-quarter report on Wednesday after the close. Please check our home page then to join!
"The enormity of this penalty resets the baseline for privacy cases and deters future violations," said FTC chairman Joseph Simons. "Once you take into account what our actual authority is, this is a great result."
The $5 billion fine represents a fraction of Facebook's annual revenue, which was $55.8 billion in 2018. But the settlement also mandates that Facebook establish a privacy committee, headed up by CEO Mark Zuckerberg. Zuckerberg and designated compliance offers must certify quarterly and annually that it is complying with terms of the settlement, and Facebook also agreed to clamp down on third-party access to its data and to certify that developers using its platform are in compliance with privacy standards.
The FTC voted 3-2 along party lines in favor of the settlement, which is set to be approved by a court.
Jim Kohm of the FTC's enforcement division added that the changes mandated by the settlement will be a costly process for Facebook, though he didn't specify how much he thought they would cost.
"From discussions with Facebook, this will be an extensive and costly restructuring," he said. In a separate settlement the FTC reached with Equifax this week over a data breach, it was projected that the credit reporting firm will have to spend $1 billion to upgrade its security infrastructure.
The FTC officials emphasized that, in the absence of a national privacy law, the settlement was a strong result for the agency, particularly given that it does not have the authority to craft laws. The agency also had to navigate the fact that in addition to serving as Facebook's CEO and chairman, Zuckerberg controls the majority of voting powers at the firm. Changes to the privacy committee will require a two-thirds vote, above what Zuckerberg could push through on his own with his roughly 53% voting shares in the firm.
The deal also sets up a blueprint of sorts for how the FTC could approach privacy issues should a national law expand its enforcement authorities. In some form or another, a national privacy law is expected to materialize sometime in the next couple of years.
"It shows an example to the Hill that if they pass comprehensive privacy legislation, we will do a good job with it...we have the expertise to do that," Simons added of the settlement.
In addition to the FTC settlement, Facebook also agreed to pay $100 million to the SEC to settle charges that it misled investors over the risks of data misuse.
"Chairman Simons himself made clear today that the current model for privacy enforcement is not sustainable -- and needs to change," said Andrew Burt, chief privacy officer at Immuta, a data governance software platform. "The statute underlying the FTC's authority is simply not meant to address the scale and scope of the privacy issues we're confronting. This won't come as news to legislators in Congress, who already have a long list of proposed bills to create stricter standards around how companies can use the data they collect. It's only a matter of time before new federal regulations increase the penalties of privacy violations."