* Facebook mostly complies with review - Irish watchdog
* Deadline of 4 weeks given for outstanding issues
* Facebook sees no impact on advertising strategy
By Padraic Halpin
DUBLIN, Sept 21 (Reuters) - Facebook Inc has tightened up its privacy controls sufficiently to satisfy a review by the body that regulates the social networking company outside North America, removing the immediate threat of legal challenges.
The world's biggest social network makes most of its money from advertising, but has to walk a fine line to avoid giving its over 950 million users the impression it is invading their privacy to boost revenue.
It was told by Ireland's Data Protection Commissioner last December to overhaul privacy protection for its users outside the United States and Canada after a probe found its privacy policies were too complex and lacked transparency.
The regulator said it was particularly encouraged by the decision to turn off a piece of facial recognition technology, the so-called "tag suggest" feature, for new users in the European Union and by next month, existing users as well.
The Irish watchdog, which oversees Facebook's activities because the group's non-U.S. business is headquartered in Dublin, said on Friday most of its instructions had been adopted, with progress still to be made on others over the next four weeks.
"We would hope that the progress reported in the review will have dealt with the various complaints we have received in relation to Facebook Ireland," Ireland's Data Protection Commissioner Billy Hawkes told a conference call.
Privacy cases can prove costly for social networking sites like Facebook, which was the first American company to debut with a value of more than $100 billion in its initial public offering in May, before its share price slumped on an uncertain outlook.
It had to settle a case for $9.5 million after its now defunct "Beacon" service violated its members' privacy rights by not requiring their consent to allow the company to broadcast their internet activity.
Ireland's watchdog had said the company risked facing legal action under European privacy laws if it failed to comply and said on Friday the social network would have to continue to engage with it as new features are introduced.
In its report, the regulator said Facebook had made particular progress in providing better transparency for its users, handing them more control over settings and the ability to more readily access their personal data.
Facebook's director of policy for Europe, the Middle East and Africa Richard Allan told Reuters the company was committed to bringing the tag suggest feature back once it had taken steps to put it in line with EU guidance.
Allan said the move should also remove the threat of legal action from Germany's Hamburg Data Commissioner over the facial-recognition feature.
"Clearly the announcement today means we think there are no grounds for them to proceed with that," Allan said, adding that Facebook's privacy changes would have no impact at all on its advertising strategy.
Pivotal Research Group analyst Brian Wieser agreed that Facebook's advertising business and its ability to let marketers aim pitches at different groups of users would not be affected.
"They could probably have a lot less data and it would still dwarf other comparable alternatives," he said. "They'll still be able to target better than others."
The regulator said the outstanding areas of concern included minimising the potential for advertising to target users based on words that could be considered as sensitive personal data, but both it and Facebook said they were confident that these issues would be dealt with speedily.
An Austrian-based group of student activists, europe-v-facebook, which has succeeded in extracting some concessions on privacy from Facebook, said the law had been waived for the tech group.
"The Irish ODPC says that Facebook has not fully implemented the suggestions and that further work has to be done, but there seem to be no consequences or fines for not complying with these suggestions," said the group in a statement.