The FDIC provides advice on deposit insurance and crypto assets JD Supra

The FDIC has issued a permit “Advice to FDIC-Insured Institutions Regarding Deposit Insurance and Dealing with Crypto Companies” to address the agency’s concerns about FDIC deposit insurance fraud and other crypto companies. Of particular concern to the FDIC is the risk that consumer confusion or harm may arise from crypto products offered by, through, or in conjunction with an insured bank, especially when a non-bank provides crypto products to its customers while also providing the insurance bank’s role. medicine.

The FDIC’s concern comes in the wake of market volatility that has led to the suspension of funds or the suspension of operations of some crypto companies. According to the FDIC, “these companies have represented to their customers that their assets are eligible for FDIC insurance, which may lead customers to falsely believe that their investments or investments are safe.”

The first part of counseling deals with fear and anxiety. The FDIC cites two factors that can cause consumer confusion. The first issue is when FDIC deposit insurance applies. The FDIC points out that FDIC deposit insurance does not protect non-bank customers from default, repossession, or repossession by non-banks, including crypto custodians, exchanges, brokers, wallet providers, or other entities that appear to mimic banks but are. no, they are called “neobanks.” The second issue is which products are FDIC insured. The FDIC points out that FDIC deposit insurance covers products issued by insured banks but does not apply to non-deposit products, such as stocks, bonds, money market funds, securities, stocks, or crypto assets.

The FDIC considers that in addition to harming consumers, customer confusion can cause banking risks if a crypto company, or another third party insurance bank, makes mistakes in the nature and scope of deposit insurance. It also identifies the risks to bank funds, which can lead to high profits and high risk, if fraud and customer confusion prompts concerned consumers to transfer funds to insured banks.

The second part of the consultancy covers risk management and leadership concepts. These ideas include:

  • Insured banks must assess, monitor, and manage risks arising from third-party relationships, including those with crypto companies.
  • Insuring banks must verify and monitor the crypto companies they work with to ensure that such companies do not misrepresent the availability of deposit insurance, and must take steps to eliminate any misrepresentations.
  • Communication about deposit insurance should be clear and transparent. Non-banks, such as crypto companies, that advertise or offer FDIC insurance products in relationships with insurance banks can reduce consumer confusion by clearly and unambiguously: (a) stating that they are not an insurance bank; (b) identify the insured banks where the customer’s money can be kept on deposit; and (c) communicate that crypto assets are not FDIC insured and may lose value.
  • Insurance banks that are involved in relationships with non-banks that offer deposit products and non-financial products, such as crypto assets, can help reduce customer confusion and harm by carefully monitoring and monitoring non-bank transactions and related disclosures. ensure accuracy and clarity. (Although the FDIC has not specifically stated, the FDIC would expect such review and oversight to include whether the non-banking counterparty has taken steps recommended by the FDIC to reduce consumer confusion.)
  • Insured banks must have appropriate risk management policies and procedures to ensure that any services provided by, or deposits received from, any third party, including a crypto company, comply with all laws and regulations.
  • Because tFDIC rules on insurance misrepresentation can apply to non-banks, such as crypto companies, insurance banks must know if their risk management policies and procedures properly manage risks related to crypto-assets, including compliance with risks related to the law.

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