Growing interest in cryptocurrencies in the US has prompted the Federal Deposit Insurance Corporation (FDIC) to issue a new warning that consumers must be informed that not all cryptocurrency holdings are subject to deposit insurance.
The warning was specifically issued to banks that may already be dealing with cryptocurrency companies.
It’s imperative that any banks dealing with cryptocurrency companies only do businesses with firms that clearly state the level of risk and insurance that they can support for their customers.
In other words, banks must seek to avoid working with companies that may deny customers withdrawals because liquidity has run short.
Voyager and Celsius Network both had to shut down withdrawals as they eventually tipped into insolvency and filed for bankruptcy.
These events have encouraged regulators to work with the FDIC arguing that banks must do everything in their power to ensure that risk is communicated clearly to customers.
The FDIC warned that inaccurate representations were not to be tolerated. “Inaccurate representations about deposit insurance by non-banks, including crypto companies, may confuse the non-bank’s customers and cause those customers to mistakenly believe they are protected against any type of loss”, the regulator stated.
Deposit insurance will only cover insured banks in a case of collapse, the FDIC said. This may not apply to non-banking partners who are not insured. Among those are cryptocurrency exchanges, providers of cryptocurrency wallet technology and cryptocurrency custodians.
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