Deposit Insurance And Cryptocurrency Assets – What The FDIC Wants You To Know | Clark Hill PLC


On July 29, the Federal Deposit Insurance Corporation (FDIC) released a Financial Institutions Information Letter informing the general public that the FDIC does not insure assets issued by non-bank institutions, such as cryptocurrency companies. change. Even if the assets are offered through an FDIC-insured bank, the asset itself is not eligible for deposit insurance because it is issued directly by a non-bank entity (i.e. i.e. a cryptocurrency exchange).

With the pent-up demand for cryptocurrencies, customers have been led to believe (incorrectly) that assets offered by cryptocurrency companies are protected by FDIC deposit insurance coverage. The FDIC’s concern stems from recent market turmoil that led to some cryptocurrency companies suspending withdrawals or halting operations. The purpose of the newsletter is to 1) urge FDIC-insured banks to review and manage the risks of all third-party relationships, including those with cryptocurrency companies, and 2) to disseminate to certain misrepresentations made by cryptocurrency companies that may cause confusion or harm to customers resulting from the offering of cryptocurrency assets.

Five things to know

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  • Deposits of insured banks and savings associations (collectively “Insured Banks”) are insured by the FDIC. Assets issued by non-bank entities, such as cryptocurrency companies, are not FDIC insured.
  • The FDIC insures deposit products offered by insured banks, such as checking accounts and savings accounts up to $250,000 in the event an insured bank fails.
  • Deposit insurance does not apply to products other than deposits, which include stocks, bonds, money market mutual funds, securities, commodities or crypto-assets. Additionally, FDIC insurance does not protect against the default, insolvency, or bankruptcy of cryptocurrency exchanges, custodians, wallet providers, and other non-bank entities.
  • To avoid consumer confusion and harm, the FDIC recommends that non-bank entities that advertise or offer FDIC-insured products in relationships with insured banks that could reduce consumer confusion clearly and conspicuously: (a) state that they are not an insured bank; (b) identifying the Secure Bank(s) where Client Funds may be held on deposit; and (c) communicate that the crypto-assets are not FDIC-insured products and may lose value.
  • On the other hand, insured banks that are involved in relationships with non-bank entities that allow both deposit and non-deposit products, such as crypto assets, can help minimize confusion and customer harms by carefully reviewing and regularly monitoring the non-bank entity’s marketing. important and related information to ensure accuracy and clarity.

Whether you’re an FDIC-insured bank or a financial institution looking to accept or offer cryptocurrencies, here are three things you should do now:

  1. Identify, develop, or improve policies and procedures to ensure that depositors have become aware that their non-bank-issued assets will not be covered by federal deposit insurance;
  2. The highest governing body of your financial institution ensures that policies and procedures are developed and implemented and that these same policies and procedures are tested to ensure that they are executed correctly and that risks are identified; and
  3. Employees of your financial institution have received appropriate training regarding these policies and procedures.

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