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FDIC Orders CEX.IO to Stop ‘Misleading Claims’ About Crypto Deposit Insurance Coverage

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Nicholas Otieno Follow


Feb, 16 2023

Feb, 16 2023

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The Federal Deposit Insurance Corporation (FDIC) on Wednesday issued a cease-and-desist letter to executives of CEX.IO cryptocurrency exchange warning them that they are violating federal regulations because of misleading and false statements about the exchange’s insurance status.

The regulator ordered CEX.IO to stop telling customers that US dollars held in its fiat currency wallets are FDIC-insured.

In the letter, FDIC mentioned a section of CEX.IO’s website that inaccurately claims that “US dollars held in your CEX.IO fiat currency wallet are FDIC-insured up to $250,000 per account.”

The letter, signed by FDIC assistant general counsel Seth Rosebrock, clarified that: “CEX is not FDIC-insured, and FDIC insurance does not protect cryptocurrency or any assets other than US dollar deposits held at IDIs [insured depository institutions].”

The FDIC also identified two websites with reviews of CEX.IO claiming that the exchange has FDIC insurance. One of the websites that the regulator flagged is Bankless Times, a UK based alternative finance news platform.

The agency demanded CEX.IO to remove any statements or references suggesting that the exchange is FDIC-insured and that any funds held in cryptocurrency by the exchange are protected by FDIC insurance. The exchange has been given 15 days to make corrections.

Why FDIC does not insure crypto ?                                    

In the recent past, multiple crypto firms claimed that deposits with them were insured by the FDIC. Of course, they do this as a way of alluring users to their platforms.

The FDIC, on the other hand, claims it does not cover cryptocurrency or insure crypto exchanges. The regulator recently issued letters to crypto firms instructing them to pull down misleading statements that mention FDIC protection.

Last July, Voyager Digital crypto lending firm came under fire from FDIC for telling its customers that its crypto products were protected by the agency.

The FDIC issued a cease and desist order against Voyager to stop misleading users into believing funds invested on its platform were insured by the government. FTX exchange also came into the spotlight when it claimed that user funds on its platform were insured. Both Voyager and FTX filed for bankruptcy in July and November, respectively.

But the matter is quite confusing as crypto firms normally hold US customer funds as cash kept in custodial accounts at one or more banks insured by the FDIC. This reveals the reason why some of these companies say they are aligned with the FDIC guidance.

In July, the FDIC urged banks serving crypto firms to ensure that users know which of their funds will be insured by the government in case of collapse.

According to federal regulations, the FDIC does not insure assets issued by non-bank entities like crypto firms. In other words, it does not protect a nonbank's users against the default, bankruptcy, or insolvency of any non-bank entity. The regulator says it only protects deposits held in insured banks and savings associations and insures them in the unfortunate events of an insured bank's failure.

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Nicholas Otieno

CBW - External Analyst


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