On July 29, the FDIC issued an advisory to FDIC-insured monetary establishments relating to deposit insurance coverage and dealings with cryptocurrency corporations. The FDIC additionally issued an accompanying fact sheet for customers relating to FDIC deposit insurance coverage and cryptocurrency corporations.
The FDIC is worried concerning the dangers of client confusion or hurt arising from crypto property provided in reference to insured depository establishments and whether or not customers are being misled relating to the supply of deposit insurance coverage. The FDIC believes that the dangers are elevated when a non-bank entity presents crypto property to the non-bank’s prospects, whereas additionally providing an insured financial institution’s deposit merchandise. The FDIC warned that banks that associate with cryptocurrency corporations ought to be sure that any communications about deposit insurance coverage are correct and don’t misrepresent the supply of deposit insurance coverage.
The advisory and truth sheet every make clear what the FDIC perceives as a principal level of confusion, that prospects might consider that they’re protected in opposition to default or insolvency of cryptocurrency corporations. The FDIC solely pays deposit insurance coverage after an insured financial institution fails. FDIC insurance coverage doesn’t defend a non-bank’s prospects in opposition to the default, insolvency, or chapter of any non-bank entity, together with crypto custodians, exchanges, brokers, pockets suppliers, and neobanks.
The FDIC has lengthy held issues relating to buyer confusion of the protection of deposit insurance coverage on retail gross sales of non-deposit funding merchandise. Current FDIC steerage requires clear and conspicuous disclosures that such merchandise aren’t FDIC-insured, not bank-guaranteed, and are topic to funding dangers and lack of principal.
Though the advisory was directed at insured banks, cryptocurrency corporations ought to pay heed to it as properly. The advisory got here someday after the FDIC and the Federal Reserve issued a cease-and-desist letter to Voyager Digital, a crypto agency that filed for chapter in July, to cease any advertising or promotions that recommended FDIC insurance coverage applies to cryptocurrency holdings.
Within the advisory, the FDIC states that cryptocurrency corporations that publicize or provide FDIC-insured merchandise in relationships with insured banks might scale back client confusion by clearly and conspicuously: (a) stating that they aren’t an insured financial institution; (b) figuring out the insured financial institution(s) the place any buyer funds could also be held on deposit; and (c) speaking that crypto property aren’t FDIC-insured merchandise and will lose worth. The FDIC cautions that its rules in opposition to misrepresentation of insured standing and misuse of the FDIC identify and emblem can apply to nonbanks.
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