Last week, the Federal Deposit Insurance Corporation issued an advisory to banks and crypto companies, warning them not to mislead consumers about whether crypto assets are insured by the FDIC. In the Advisory to FDIC-Insured Institutions Regarding FDIC Deposit Insurance and Dealings with Crypto Companies, the FDIC said that it is "concerned about the risks of consumer confusion or harm arising from crypto assets offered by, through, or in connection with insured depository institutions (insured banks)."
The FDIC also warned that, "Inaccurate representations about deposit insurance by non-banks, including crypto companies, may confuse the non-bank's customers and cause those consumers to mistakenly believe they are protected against any type of loss."
In the advisory, the FDIC explained that the FDIC protects depositors of insured banks against the loss of their deposits (up to $250,000) after an insured bank fails. It does not protect, however, a non-bank's customers against a failure by a non-bank entity, such as crypto custodians, exchanges, brokers, wallet providers, or "neobanks." The FDIC emphasized that it only insures deposit products such as savings and checking accounts, not non-deposit products such as stocks, bonds, mutual funds, securities, commodities, or crypto assets.
The FDIC told banks that, in their dealings with crypto companies, they should "confirm and monitor that these companies do not misrepresent the availability of deposit insurance in order to measure and control risks to the bank, and should take appropriate action to address such misrepresentations."
In addition, the FDIC said that crypto companies that advertise or offer FDIC-insured products in relationships with insured banks could reduce consumer confusion by clearly and conspicuously disclosing: (a) they are not an insured bank, (b) the insured bank where customer funds may be held on deposit, and (c) crypto assets are not FDIC-insured products and may lose value.
"Inaccurate representations about deposit insurance by non-banks, including crypto companies, may confuse the non-bank's customers and cause those consumers to mistakenly believe they are protected against any type of loss"