- The United States Federal Deposit Insurance Corporation FDIC has in a recent statement cleared the air about whether it provides insurance to assets issued by crypto companies or not.
- According to the FDIC, its insurance services do not cover assets issued by non-bank entities which include crypto firms.
US authorities have in the past couple of years sought to find a solution to the regulatory uncertainty surrounding the crypto market. As many institutions are coming out to issue a clarification in their operations with regards to crypto, the United States Federal Deposit Insurance Corporation (FDIC), has in a recent statement cleared the air about whether it provides insurance to assets issued by crypto companies or not.
According to the FDIC, its insurance services do not cover assets issued by non-bank entities which include crypto firms. However, it advises banks to assess and manage risks in third-party relationships with crypto companies. FDIC further clarified that deposits at insured banks could benefit up to $250,000. Regardless, insolvency, default, or bankruptcy of any non-bank entity does not qualify for this cover; these non-bank entities include crypto exchanges, custodians, wallet providers, brokers, and others whose services are similar to banks.
Some crypto companies have misrepresented to consumers that crypto products are eligible for FDIC deposit insurance coverage or that customers are FDIC-insured if the crypto company fails. These sorts of statements are inaccurate and can cause consumer confusion about deposit insurance and harm consumers under certain circumstances.
FDIC says Voyager Digital is not insured with them
This advice comes after Seth Rosebrock and Jason Gonzalez, assistant general counsel at the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) issued a joint letter to Voyager Digital to remove its false and misleading statements that its user deposits are insured by them. According to the letter, these false statements were represented on their various platforms including their website, mobile app, as well as their social media platforms. They also demanded Voyager Digital provide a written confirmation within two business days concerning their compliance with the regulator’s request.
FDIC has been insuring companies since 1934. Initially, it provided a cover of up to $2500. As claimed by them, no depositor has lost any amount in an FDIC-insured bank since its operation. This is a huge feat because 9,000 such institutions failed before 1940. They also mentioned that 561 insured banks failed between 2001 and 2002. In 2010, 157 institutions failed.
Customer confusion can lead to legal risks for banks if a crypto company, or other third-party partners of an insured bank with whom they are dealing, makes misrepresentations about the nature and scope of deposit insurance. Moreover, misrepresentations and customer confusion could cause concerned consumers with insured-bank relationships to move funds, which could result in liquidity risk to banks and turn, could potentially result in earnings and capital risks.