A U.S. banking regulator is urging banks that do business with cryptocurrency firms to ensure their customers know which of their funds will be government-insured in the event of a collapse and which have no backstop.
The Federal Deposit Insurance Corporation (FDIC) said on Friday that it is concerned that consumers may be confused about the safety of their money when it is placed in crypto assets, especially in cases where companies offer a combination of uninsured crypto products alongside insured bank deposit products.
In a new advisory, the FDIC said banks should ensure that crypto firms they partner with do not overstate the scope of deposit insurance. The push comes as widespread turmoil in the crypto market has led to the collapse of some prominent companies, including a regulator publicly chastised yesterday for overstating deposit insurance coverage.
“Inaccurate statements about deposit insurance by non-banks, including crypto companies, can confuse non-bank customers and lead those customers to mistakenly believe that they are protected against any type of loss,” the FDIC notice said.
On Thursday, the FDIC and the Federal Reserve issued a cease and desist order against bankrupt crypto firm Voyager Digital, accusing the company of misleading customers into believing that funds invested in the brokerage would be guaranteed by the government.
Specifically, the FDIC said banks must make it clear to the public that deposit insurance only covers insured banks in the event of a collapse, and that the protection does not extend to the failure of non-bank partners, which may include crypto custodians, exchanges, and wallet providers. .
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