On August 19, the Federal Deposit Insurance Corporation (FDIC) issued cease and desist letters to five cryptocurrency companies, demanding they refrain from making allegedly false and misleading statements about deposit insurance.
“Based upon evidence collected by the FDIC, each of these companies made false representations — including on their websites and social media accounts — stating or suggesting that certain crypto-related products are FDIC-insured or that stocks held in brokerage accounts are FDIC-insured … . These representations are false and misleading.”
FDIC deposit insurance protects customers in the event of the failure of an FDIC-insured depository institutions. The Federal Deposit Insurance Act, 12 U.S.C. Section 1828, prohibits any person from representing or implying that an uninsured product is FDIC-insured. Currently, the FDIC only insures deposits held in insured banks and savings associations.
In its letters, the FDIC demanded the five companies take corrective action, including that they:
- Remove any and all statements, representations, or references that suggest in any way that any cryptocurrency or cryptocurrency exchanges are FDIC-insured;
- Cease and desist from making any statements, representations, or references that suggest in any way that any cryptocurrency or cryptocurrency exchanges are FDIC-insured;
- Provide written confirmation to the FDIC within 15 business days that the above demands have been fully complied with.
On July 29, the FDIC released “Advisory to FDIC-Insured Institutions Regarding Deposit Insurance and Dealings with Crypto Companies” to address certain misrepresentations about FDIC deposit insurance by some crypto companies, along with “Fact Sheet: What the Public Needs to Know About FDIC Deposit Insurance and Crypto” to the FDIC’s website to provide additional information about deposit insurance coverage.
This recent activity follows the FDIC’s April 2022 letter, requiring all FDIC-supervised institutions that intend to engage in, or that are currently engaged in, crypto-related activities to notify its FDIC regional director and encouraging institutions to notify their state regulator.
Crypto and other companies partnering with banks and the banks that provide banking-as-a-service to these companies should review this guidance against applicable websites and other marketing and disclosures to ensure compliance.
Troutman Pepper will continue to monitor important developments involving the FDIC and the cryptocurrency industry and will provide further updates as they become available.