FDIC Issues Advisory to Insured Institutions and FDIC and FRB Issue Letter to Voyager Digital Regarding Misrepresentations on Deposit Insurance for Digital Assets | Practical Law

FDIC Issues Advisory to Insured Institutions and FDIC and FRB Issue Letter to Voyager Digital Regarding Misrepresentations on Deposit Insurance for Digital Assets | Practical Law

The FDIC issued an advisory to insured depository institutions urging them to address misrepresentations that FDIC deposit insurance applies to digital assets. The FDIC, together with the Board of Governors of the Federal Reserve System, also sent a letter to cryptocurrency lending platform Voyager Digital, LLC, demanding that it cease and desist misrepresenting to its customers that Voyager or the funds it holds are FDIC insured.

FDIC Issues Advisory to Insured Institutions and FDIC and FRB Issue Letter to Voyager Digital Regarding Misrepresentations on Deposit Insurance for Digital Assets

by Practical Law Finance
Published on 02 Aug 2022 • USA (National/Federal)
The FDIC issued an advisory to insured depository institutions urging them to address misrepresentations that FDIC deposit insurance applies to digital assets. The FDIC, together with the Board of Governors of the Federal Reserve System, also sent a letter to cryptocurrency lending platform Voyager Digital, LLC, demanding that it cease and desist misrepresenting to its customers that Voyager or the funds it holds are FDIC insured.
On July 29, 2022, the FDIC issued an advisory to insured depository institutions (IDIs) urging them to correct misrepresentations that FDIC deposit insurance applies to digital assets. The FDIC is concerned that consumers may mistakenly believe that digital assets are covered by FDIC deposit insurance. This may be particularly confusing to consumers who obtain digital assets from nonbank affiliates of FDIC-insured institutions that also offer traditionally insured deposits in deposit accounts, such as funds in savings accounts, checking accounts, and certificates of deposit.
According to the fact sheet issued in connection with the advisory:
  • The FDIC only insures deposits held in FDIC-insured institutions in the event such an institution fails.
  • The FDIC does not insure deposits in the event of loss resulting from theft or fraud.
  • The FDIC does not insure deposits in the event of default, insolvency, or bankruptcy for nonbank entities, including digital asset companies and custodians.
  • The FDIC does not insure assets issued by non-insured institutions or nonbank entities, such as digital asset companies.
  • Deposit insurance applies only to specific FDIC-insured entity deposit products, including savings accounts, checking accounts, and certificates of deposit. Deposit insurance does not apply to stocks, bonds, money market mutual funds, commodities, or digital assets.
To prevent consumers from harboring the misperception that the FDIC insures digital assets offered by FDIC-insured institutions, the FDIC advises insured banks and savings associations to:
  • Increase their awareness of how FDIC insurance works.
  • Assess, manage, and control risks arising from their relationships with third parties, including digital asset companies.
  • Review and monitor nonbank affiliate marketing and disclosures.
  • Develop risk-management policies and protocols to make sure nonbank affiliates are compliant with all applicable laws and regulations, including the FDIC's Rules and Regulations, Subpart B, Part 328.
Additionally, digital asset companies (and other nonbank institutions without FDIC coverage) can take steps to prevent consumers from mistakenly believing the digital assets they offer are FDIC-insured, including:
  • Stating they are not an FDIC-insured bank or savings institution.
  • Identifying FDIC-insured depository institutions where customers' non-digital asset deposits can be held in an FDIC-insured manner.
  • Stating that digital assets are not FDIC insured and may lose value without any FDIC protection.
On the day prior to issuance of the advisory, July 28, 2022, the FDIC, along with the Board of Governors of the Federal Reserve System (FRB), issued a joint letter to cryptocurrency lending platform Voyager Digital, LLC (Voyager) demanding that it cease and desist from misrepresenting to its customers that Voyager or the funds it holds are FDIC insured. In its letter, the FDIC and FRB state that Voyager made misleading statements to its customers, causing them to believe that Voyager and the cryptocurrency it holds are FDIC insured.
Voyager is a cryptocurrency platform that has at least one deposit account with Metropolitan Commercial Bank (Metropolitan). Although Metropolitan is FDIC insured, as are the deposits it holds, Voyager is not independently FDIC insured.
According to the FDIC and FRB, these misleading statements violate the Federal Deposit Insurance Act (12 U.S.C. §1828(a)(4)). In its letter, the FDIC and FRB demand that Voyager:
  • Remove immediately all statements, representations, or references suggesting that:
    • Voyager is FDIC insured;
    • customers investing with Voyager receive FDIC insurance coverage for all funds provided to or held by Voyager; and
    • the FDIC would insure customers against Voyager's failure.
  • Provide the FDIC and FRB with written confirmation that it has complied with the above requests within two business days of Voyager's receipt of the letter.