A U.S. banking regulator is urging banks dealing with cryptocurrency companies that they need to make sure customers know which of their funds will be insured by the government in case of collapse, and which have no safety net.
The Federal Deposit Insurance Corporation (FDIC) said Friday it is concerned consumers may be confused about how safe their money may be when placed in crypto assets, particularly in cases where firms offer a mix of uninsured crypto products alongside insured bank deposit products.
In a new advisory, the FDIC said banks need to make sure any crypto firms they partner with do not overstate the reach of deposit insurance. The push comes as broad turmoil in the crypto market has led to the collapse of some high-profile firms, including one regulators publicly chastised yesterday for overstating deposit insurance coverage.
“Inaccurate representations about deposit insurance by non-banks, including crypto companies, may confuse the non-bank’s customers and cause those customers to mistakenly believe they are protected against any type of loss,” the FDIC advisory stated.
On Thursday, the FDIC and Federal Reserve issued a cease and desist order against now-bankrupt crypto firm Voyager Digital, charging the company misled customers to believe funds invested in the brokerage would be guaranteed by the government.
Specifically, the FDIC said banks need to make clear to the public that deposit insurance only covers insured banks in case of collapse, and that protection does not extend to the failure of any nonbank partners, which can include crypto custodians, exchanges, and wallet providers.