FDIC Issuance Cease and Desist Letter to Five Crypto Companies
The Federal Deposit Insurance Corporation (FDIC) recently issued letters requiring five crypto companies to cease and desist from making false and misleading statements about FDIC insurance and to take immediate corrective action to address the false and misleading statements.
The letters follow an enforcement memorandum and a new rule published by the Consumer Financial Protection Bureau (CFPB) earlier this year that threatens enforcement for deceptive acts and practices related to the use of the FDIC logo and insurance coverage statements.
The crypto companies were cited by the FDIC for making false representations stating or implying that certain crypto-related products were FDIC insured. Each of these digital asset providers made statements, including marketing and product information published on websites and social media accounts, and in one case registered domain names indicating that certain crypto products or accounts were insured or approved by the FDIC.
Digital assets, virtual currency, tokens and cryptocurrency are receiving increased regulatory oversight, scrutiny and review as new and traditional laws and regulations gain traction in application to digital asset markets, participants and products. Providers must take care to stay abreast of regulatory notices, updates and information releases published by regulatory agencies such as the CFPB and FDIC, along with other state and federal regulators.
The Federal Deposit Insurance Act (FDIA), which is enforceable by both the FDIC and the CFPB, prohibits any person from representing or implying that an uninsured product is FDIC insured, or knowingly misrepresenting the extent of deposit insurance applicable to a product. Companies, including digital asset and crypto providers, are prohibited from implying that their products are FDIC-insured by using “FDIC” in their company names, advertisements, or other documents and websites.
In short, a company may not indicate that customer accounts are insured, nor that flow insurance applicable to company accounts may provide cover for customer accounts. These prohibitions include statements suggesting that deposits to certain crypto providers are insured and or are held in insured deposit accounts at participating financial institutions.
The FDIA often requires non-bank institutions to identify the ultimate institution where deposits are actually insured by name. So that when pass-through or deposit accounts are advertised as insured, the actual FDIC-insured institution providing the insured accounts is identified.
The FDIC issued letters to one crypto commodity exchange, three crypto product news providers, and one crypto-related domain holder related to their statements, allegations, and indications that certain accounts, products, exchanges, and providers were FDIC-insured or FDIC-approved. Three vendors that listed information about FDIC coverage for certain other digital asset companies as an information or news service were ordered to cease and desist from including false insurance coverage information on their news and information websites.
The FDIC letters reflect an increase, across government agencies, regulators and regimes, in the oversight and scrutiny applicable to digital asset platforms, products and service providers. Digital asset platforms, cryptocurrency providers and virtual asset businesses may be subject to oversight when making statements about the coverage, status and insurance applicable to their accounts and customer deposits.
