Intensifying its campaign to crack down on pretenders to federal deposit insurance coverage, the federal bank deposit insurance agency said Wednesday it “demands” that four entities connected to crypto-asset exchanges and other firms cease making false or misleading representations about their insurance status.
In a release, the Federal Deposit Insurance Corporation (FDIC) said it issued letters demanding that two entities, CEX.IO Corp. (a cryptocurrency exchange) and Zera Financial (a non-bank financial service provider), “cease and desist from making false and misleading statements about FDIC deposit insurance and take immediate corrective action to address these false or misleading statements.”
The agency said it also directed two websites, Captainaltcoin.com and Banklesstimes.com, to remove similar false and misleading statements about the FDIC-insured status of CEX.IO.
According to the FDIC, it has evidence that the entities cited in the letters made false representations, stating or suggesting that both CEX.IO and Zera Financial are FDIC–insured, that FDIC insurance will protect customers’ cryptocurrency, or that that FDIC-insurance would protect customers in the event of Zera Financial’s failure. “These representations are false and misleading,” the agency said.
In a statement, FDIC Board Chairman Martin Gruenberg indicated that the agency is seeing increased such alleged false representations. “These practices not only harm those who are targeted with the false promise of deposit insurance, but, if left unchecked, could also undermine confidence in the FDIC, FDIC-insured banks, and the U.S. banking system,” Gruenberg said.
The agency now has a proposed rule out for comment that would tighten its regulations about who can claim federal bank deposit insurance coverage and who cannot – as well as how those claims may be made.
The proposal was first issued in December and is aimed at, among other things, differentiating federally insured bank deposits from non-insured savings. Those include financial products offered by non-federally insured financial firms, such as financial technology firms (fintechs).
The FDIC said the proposed rule addresses specific scenarios where consumers may be misled about whether their funds are protected by deposit insurance. The changes, according to the agency, would enable consumers to better understand when they are doing business with an insured depository institution (IDI) and when their funds are covered by the FDIC’s deposit insurance.
On Jan. 30, the agency extended the comment period by 45 days (to April 7) following what it said were requests by commenters to give them more time.
FDIC Demands Four Entities Cease Making False or Misleading Representations about Deposit Insurance