On July 29, the FDIC issued an advisory to FDIC-insured monetary establishments concerning deposit insurance coverage and dealings with cryptocurrency firms. The FDIC additionally issued an accompanying fact sheet for shoppers concerning FDIC deposit insurance coverage and cryptocurrency firms.
The FDIC is anxious in regards to the dangers of client confusion or hurt arising from crypto property supplied in reference to insured depository establishments and whether or not shoppers are being misled concerning the supply of deposit insurance coverage. The FDIC believes that the dangers are elevated when a non-bank entity gives 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 firms 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 could consider that they’re protected in opposition to default or insolvency of cryptocurrency firms. The FDIC solely pays deposit insurance coverage after an insured financial institution fails. FDIC insurance coverage doesn’t shield 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 considerations concerning buyer confusion of the protection of deposit insurance coverage on retail gross sales of non-deposit funding merchandise. Present FDIC steering requires clear and conspicuous disclosures that such merchandise will not be FDIC-insured, not bank-guaranteed, and are topic to funding dangers and lack of principal.
Though the advisory was directed at insured banks, cryptocurrency firms ought to pay heed to it as nicely. The advisory got here at some point 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 prompt FDIC insurance coverage applies to cryptocurrency holdings.
Within the advisory, the FDIC states that cryptocurrency firms that publicize or supply FDIC-insured merchandise in relationships with insured banks may 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 will not be FDIC-insured merchandise and should lose worth. The FDIC cautions that its laws in opposition to misrepresentation of insured standing and misuse of the FDIC identify and brand can apply to nonbanks.
Copyright 2022 Okay & L GatesNationwide Legislation Assessment, Quantity XII, Quantity 215