The Federal Deposit Insurance coverage Company (FDIC), an impartial federal agency that insures deposits in U.S. banks within the occasion of a financial institution failure, informed American enterprise banks on Friday to make sure that any crypto corporations they associate with do not exaggerate the scope of deposit insurance coverage.
The monetary regulator is worried that customers may be confused regarding the safety of their funds when invested in cryptocurrencies, particularly when crypto corporations supply a mixture of uninsured crypto goods and insured financial institution deposit merchandise.
In a news release issued on Friday, the FDIC advise noted, “Inaccurate representations concerning deposit insurance coverage by non-banks, including crypto businesses, may mislead the non-clients bank’s into believing they are insured against any type of loss.”
Specifically, the FDIC instructed banks to make it plain to the general public that deposit insurance coverage only applies to insured banks in the event of a collapse. The company stated that insurance coverage does not cover the failure of non-bank partners, such as crypto custodians, exchanges, and wallet providers.
The FDIC advised banks dealing with crypto firms to inform their clients which of their funds will be protected by the federal government in the event of a failure, and which will not be.
Voyager Digital in the Spotlight Once Again
The fresh advise from the U.S. banking regulator comes after the Federal Reserve and the FDIC on Thursday ordered crypto brokerage firm Voyager Digital to stop advising clients that their accounts are insured against loss by the Federal Deposit Insurance Corporation, as such representations are false.
Voyager has said on its website, mobile app, and social media profiles that it is federally insured.
On Friday, Voyager’s website stated: “Your USD is held by our banking partner, Metropolitan Business Bank, which is FDIC-insured, so the funds you hold with Voyager are safe.” The website asserted that deposits are FDIC-insured up to US$250,000.
The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve (Fed) issued a combined letter to Voyager on Thursday, requiring the crypto trader to remove such assertions from its website and social media by Monday, along with a confirmation note.
At the beginning of this month, the FDIC was investigating how bankrupt cryptocurrency broker Voyager advertised and marketed itself to customers.
Officers of the FDIC have determined that Voyager is in violation of the Federal Deposit Insurance Act, which prohibits indicating that deposits are covered when they are not.
Voyager Digital holds a checking account with New York’s Metropolitan Business Financial Institution. The FDIC determined that while the checking account is protected, customers who open and use accounts on the Voyager Digital platform are not insured.
Voyager is regarded as one of a number of crypto companies negatively impacted by the market’s fall. The company filed for Chapter 11 protection in the Southern District of New York on July 5 in response to the recent financial crisis affecting the cryptocurrency industry.
Why Cryptocurrencies Are Not FDIC-Insured
The Federal Deposit Insurance Corporation (FDIC) is a government agency responsible for protecting the checking, savings, and certificates of deposit (CDs) of the general public from unanticipated losses.
Having an FDIC-insured account means that everyone who has deposited at least $250,000 in a bank will have their cash refunded in the event of a sudden bank failure.
However, speculative assets such as cryptocurrency and stocks are typically not guaranteed by the FDIC. Such assets are not guaranteed by the FDIC since they do not qualify as financial deposits and carry a level of risk that investors agree to assume. This conforms to the regulation.