The Federal Deposit Insurance Corporation (FDIC) Has Issued Guidance Regarding FDIC Insurance and Crypto Assets – August 2022 #2 | JD Supra


In this article. The Federal Deposit Insurance Corporation (FDIC) has taken action against crypto-related falsehoods or misrepresentations; The Board of Governors of the Federal Reserve System (Federal Reserve) issued a letter on the management and control of risks related to crypto-assets; The FDIC issued an executive order for the re-reporting of many of the funds that were insufficient; The Commodity Futures Trading Commission’s (CFTC) Market Participants Division has announced that it has issued a temporary no-action letter regarding financial and financial reporting to non-US nonbank swap dealers (NBSDs); and the US Securities and Exchange Commission’s (SEC) Division of Investment Management observed differences in the way investment companies (Funds) invest in Treasury Inflation-Protected Securities (TIPS) calculate their fixed income. These events are discussed in detail below.

Development of Laws

FDIC Takes Action Against False or Misleading Crypto Representations

On August 19, the FDIC printed letters (Letters) to five companies demanding that they cease and desist from making false and misleading claims about the FDIC and take immediate action to correct and correct these claims. These letters are part of the FDIC’s efforts to educate the public about the scope of the FDIC’s deposit insurance and to protect the public from confusion related to crypto companies that make false security claims. In July 2022, the FDIC issued a real paper explaining that crypto companies are not covered by FDIC deposit insurance despite claims of such coverage by other crypto companies. The letters are based on evidence gathered by the FDIC that shows false claims on company websites and social media that some crypto products are insured by the FDIC. The Federal Deposit Insurance Act (FDI Act) “prohibits any person from representing or implying that an uninsured product is FDIC insured or from knowingly misrepresenting the extent and scope of deposit insurance.”

“The FDI Act also prohibits companies from implying that their companies are FDIC insured by using ‘FDIC’ in the company’s name, advertisements, or other documents.”

Federal Reserve Issues Additional Notice to Banking Institutions Doing or Seeking to Do Crypto-Asset Related Transactions

On August 16, the Federal Reserve release regulatory letter and regulations regarding risks related to crypto-assets. This letter provides that a banking institution regulated by the Federal Reserve that engages in, or intends to engage in activities related to crypto-assets must notify its supervisors at the Federal Reserve. The Federal Reserve is keeping a close eye on developments related to the current situation and the banking institutions involved in crypto-asset-related activities. While the emerging crypto-asset sector offers many opportunities for banks, it also presents significant and new risks. Activities related to Crypto-assets may bring risks related to security and logic, consumer protection and financial stability, including technology and services, terrorist financing, consumer protection, compliance and financial stability. Before engaging in any activity related to cryptocurrencies, the banking regulatory body must ensure that the activity is legally valid and check whether any documents are required according to federal or state laws, and the banking regulatory body must have adequate systems, monitoring look out for danger. and manage such activities in a safe and efficient manner in accordance with all applicable laws, including consumer protection laws and regulations.

FDIC Provides Regulatory Guidance on NSF Data Restatements

On August 18, the FDIC released instructions to FDIC-supervised institutions that pay additional non-sufficient funds (NSF) after the first demonstration of certain activities exposes financial institutions to various risks, including: (1) violation of Section 5 of the Federal Trade Commission Act, prohibiting unfair or fraudulent practices or practices ; (2) third-party central processors responsible for identifying and tracking resubmissions and providing systems to determine when NSF funds are assessed; and (3) class actions or other crimes. The FDIC encourages agencies to implement risk mitigation measures to minimize harm to consumers and prevent violations, such as (1) eliminating NSF funds; (2) refusing to pay substantial amounts of NSF funds for proposed activities; (3) reviewing policies, procedures and practices; (4) fully disclose to clients how the agency pays NSF funds; or (5) ensure that customers are notified of NSF transactions so that they can take appropriate action to avoid further charges.

CFTC Staff Expands Interim No-Action Letter Regarding Principal and Financial Reporting for Certain Non-US Nonbank Swap Dealers.

On August 17, the CFTC Market Participants Division announced that it had issued a no-action letter to the CFTC. Staff Letter No. 21-20 (Letter 21-20), which was issued on September 30, 2021, to include NBSDs located in foreign jurisdictions and is expected to be reviewed by the CFTC to ensure comparability. The exemption status is also being extended to temporarily registered NBSDs located in Japan, Mexico, the United Kingdom and the European Union, with a requirement to comply with existing requirements and financial reporting and other filings. CFTC financial statements.

The interim no-action letter is in response to a multi-stakeholder request from the Securities Industry and Financial Markets Association, the Institute of International Bankers and the International Swaps and Derivatives Association on behalf of NBSD members. The no-action obligation will expire on the earlier of October 1, 2024 or if the CFTC issues a final Capital Comparability Determination with respect to each share.

SEC Division of Investment Management Published ADI Regarding Investment Companies Related to INSTRUCTIONS and SEC Yields

On August 17, the SEC’s Division of Investment Management Disclosure Review and Accounting Office released the latest accounting and disclosures (ADI) related Funds that all trade heavily in PRINCIPLES and declare their fixed income (SEC yield). ADIs are publications that summarize staff opinions on federal security regulations.

In this latest ADI, stakeholders expressed concern about TIPS Funds potentially misleading the SEC’s Yield Index during periods of rising yields. In particular, the inflation protection nature of TIPS may cause the Fund to exhibit higher SEC yields during periods of high inflation. As a result, the staff strongly encourages TIPS Funds that choose to declare their SEC Yields to carefully consider their accounting method and the adequacy of their disclosures, such as using appropriate and timely disclosures to disclose everything about their SEC Yields without misleading.

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