FDIC says Funds Deposited to Cryptocurrency Exchanges are Uninsured

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The US Federal Deposit Insurance Corporation (FDIC) has issued an advisory to the public concerning the deposits that the agency insures. The institution said it did not insure assets issued by non-banking institutions such as cryptocurrency companies.

Crypto exchanges are not FDIC-insured

The Corporation published an advisory on Friday saying that banks based in the US needed to examine and manage the risks associated with third-party associations with cryptocurrency companies.

The FDIC added that deposits made with banking institutions were insured for up to $250,000. However, the same protections did not apply to crypto exchanges, custodians, wallet providers, or non-banking entities. Therefore, customer funds on such platforms were vulnerable in case of insolvency or bankruptcy.

The FDIC said that some crypto companies have been making false claims to their customers that they were eligible for FDIC insurance coverage and that the agency protected their funds if the cryptocurrency company goes under. The FDIC said these allegations were false and could trigger lure customers to deposit funds and end up being harmed in some cases.

The Corporation started insurance customer deposits on banks in 1934, with coverage of up to $250000. Since then, the government agency has not reported any financial loss on the depositor who transacted with an FDIC-insured bank. According to the government agency, 561 insured banks failed between 2001 and 2022. 157 institutions also failed in 2010.

FDIC issues a warning to Voyager

The recent advisory by the Corporation follows a letter published on Thursday by the enforcement division at the FDIC. The institution issued a joint statement alongside the Federal Reserve saying that Voyager Digital made false claims of being an FDIC-insured institution, which misled depositors.

Voyager is a cryptocurrency company that filed for bankruptcy after halting customer withdrawals. The FDIC assistant general counsels said that as Voyager advised people to buy Bitcoin and other cryptocurrencies on the platform, they made “false and misleading” claims of being FDIC-insured.

The legal team said that the Corporation would not insure Voyager customers or any deposits made to the company. They added that such false claims could cause customer confusion and legal risks for banks. The false claims could also prompt consumers with insured bank relationships to shift their funds, resulting in a liquidity risk for banks. It could hamper earnings and increase capital risks.

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