The European Union says Facebook parent company Meta Platforms’ (META) “pay or consent” ad model violates its new digital competition rules. Meta stock traded lower early Monday following the news.

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Meta, which also owns Instagram, introduced the ad model for European users on both services last year. It requires users to either opt-in to have their data tracked for advertising, or pay a subscription for an ad-free service. Meta said in October 2023 that it was launching the service to comply with the EU’s Digital Markets Act, aimed at boosting tech competition.

In a statement Monday, regulators with the European Commission said Meta’s policy fails to comply with the law.

“This binary choice forces users to consent to the combination of their personal data and fails to provide them a less personalized but equivalent version of Meta’s social networks,” the commission said.

On the stock market today, Meta stock was down 1.5% near 496 in morning trades. Shares opened slightly higher before retreating.

EU Regulation

The European Commission’s statement represents its preliminary findings. Meta will have a chance to review the finding and respond to them. But if the commission’s preliminary view is confirmed by regulators, Meta could face fines of up to 10% of global revenue.

In a statement to the Wall Street Journal, a Meta spokesperson said the company looks “forward to further constructive dialogue with the European Commission to bring this investigation to a close.”

Approved in late 2022 by the 27-nation European Union, the Digital Markets Act hopes to boost competition in digital marketplaces. The EU designated six companies as “gatekeepers” that must comply with the DMA: Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), TikTok parent company ByteDance, Meta and Microsoft (MSFT).

Meta is the second Big Tech company the EU has accused of breaching the new rules. The European Commission has also taking the preliminary view that Apple’s app store violated the Digital Markets Act. The regulator informed Apple of the finding last week.

Meta Stock: Trading Above Recent Buy Point

Meanwhile, Meta stock opened trading Monday below a 514.01 cup-with-handle buy point identified by IBD MarketSurge charts.

Shares are nearly recovered from a slide that following Meta’s first quarter earning report in April. Meta stock’s 52-week high is 531.49.

Overall, Meta stock has gained 43% this year and 76% over the past 12 months.