WASHINGTON — The Federal Deposit Insurance Corp. is warning banks about the dangers posed by crypto-company partners that overstate the protections afforded by deposit insurance.
The FDIC issued an advisory Friday that it’s “concerned about the risks of consumer confusion or harm” arising from digital assets that are offered in connection with an insured depository institution. It came a day after the FDIC and the Federal Reserve
Concerns about bank-crypto partnerships, especially how those partnerships are marketed and the extent of deposit insurance coverage, are
“Risks are elevated when a nonbank entity offers crypto assets to the nonbank’s customers, while also offering an insured bank’s deposit products,” the agency said in its advisory.
Not only did the FDIC warn about risks to consumers, but it told banks that these partnerships could put them in a vulnerable position, too.
The Federal Reserve and Federal Deposit Insurance Corp. said the crypto firm’s response doesn’t “preclude us from taking any further action.”
“In addition to potential consumer harm, customer confusion can lead to legal risks for banks if a crypto company, or other third-party partner of an insured bank with whom they are dealing, makes misrepresentations about the nature and scope of deposit insurance,” the FDIC said in the advisory. “Moreover, misrepresentations and customer confusion could cause concerned consumers with insured-bank relationships to move funds, which could result in liquidity risk to banks and in turn could potentially result in earnings and capital risks,” the agency said.
The advisory lays out banks’ responsibility when partnering with crypto companies. It says that insured banks “need to be aware of how FDIC insurance operates and need to assess, manage and control risks arising from all third-party relationships, including those with crypto companies.” It says that banks should confirm and monitor that crypto companies don’t misrepresent the availability of deposit insurance.
The advisory also urges insured banks to have appropriate risk management policies and processes to make sure that deposits received by a third party, such as a crypto company, are in compliance with laws and regulations.
