The FDIC has published clarification regarding the insurance status of assets deposited on non-bank entities, stating that FDIC insurance does not apply to crypto companies and other similar platforms.
The United States Federal Deposit Insurance Corporation (FDIC) has issued a statement advising the public that assets issued by non-bank entities, such as crypto companies, are not insured by the FDIC.
A notice published on Friday July 29 addresses “misrepresentations” regarding FDIC deposit insurance by some crypto companies, stating that US banks should assess and manage risks present within relationships with third-party cryptocurrency firms and companies.
Today, we issued an advisory to FDIC-insured financial institutions on FDIC deposit insurance and the risks of dealing with #crypto-asset companies. Read more ➡️https://t.co/rXHAoR9197. pic.twitter.com/KSAf2nmh9J— FDIC (@FDICgov) July 29, 2022
Crypto Companies “Misrepresent” Insurance Eligibility — FDIC
The FDIC currently provides up to $250,000 insurance for deposits made to US banks. The new clarification from the FDIC, however, states that while bank deposits are insured, no such protections apply in the case of “the default, insolvency, or bankruptcy of any non-bank entity, including crypto custodians, exchanges, brokers, wallet providers, or other entities that appear to mimic 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,”
The latest advisory issued by the FDIC follows a letter published on Thursday by the FDIC’s enforcement in which assistant general counsels Jason Gonzalez and Seth Rosebrock state that DeFi platform Voyager issued “false and misleading” statements regarding the FDIC insurance status of deposits made to the lender.
DeFi Platforms & Users Ineligble
FDIC enforcement division statements suggest that FDIC insurance does not cover either funds deposited to the Voyager platform or Voyager customers. Additional detail regarding the FDIC stance on DeFi and crypto lending platforms published within Friday’s announcement highlights the frequency at which cryptocurrency companies make incorrect claims regarding FDIC insurance:
“Over the past several months, some crypto companies have suspended withdrawals or halted operations. In some cases, these companies have represented to their customers that their products are eligible for FDIC deposit insurance coverage, which may lead customers to believe, mistakenly, that their money or investments are safe.”
Further guidance made available to the public via the FDIC advisory includes a fact sheet regarding FDIC deposit insurance and crypto companies.