The day after demanding Voyager Digital erase its claims that customers’ funds would get government protections, the U.S. Federal Deposit Insurance Corporation has issued a broader warning to bankers that they need to keep their crypto partners in line.
The agency, which maintains an insurance fund to pay back depositors if their banks fail, doesn’t extend that protection to failing cryptocurrency firms that use those banks, according to an FDIC letter to banks posted Friday.
“FDIC insurance does not protect a nonbank’s customers against the default, insolvency, or bankruptcy of any nonbank entity, including crypto custodians, exchanges, brokers, wallet providers or other entities that appear to mimic banks but are not,” the agency instructed.
The FDIC guidance added that if a bank’s crypto partner “makes misrepresentations about the nature and scope of deposit insurance,” there could be legal risks for that regulated lender.
The FDIC and Federal Reserve sent a letter to Voyager CEO Stephen Ehrlich this week that accused the crypto lender of misleading customers about the protections on their assets by implying that they’d be covered by deposit insurance in the event of Voyager’s collapse. The letter, however, came late for Voyager customers now struggling to get their money back as the company makes its way through bankruptcy court.
The Toronto-based firm had accounts at Metropolitan Commercial Bank in New York, which itself is FDIC-insured, but only in case of a failure of Metropolitan – not Voyager. Now the FDIC is warning that banks such as Metropolitan are responsible for keeping track of what their business partners might be claiming.
“In their dealings with crypto companies, insured banks should confirm and monitor that these companies do not misrepresent the availability of deposit insurance in order to measure and control risks to the bank, and should take appropriate action to address such misrepresentations,” the agency said.
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