US regulator warns banks on safety of crypto

A US banking regulator says banks dealing with cryptocurrencies need to make sure they know which of their funds will be insured by the government in case of collapse.

The Federal Deposit Insurance Corporation FDIC said Friday that consumers may be confused as to how safe their money may be when placed in crypto assets, particularly in cases where firms offer uninsured products alongside insured bank deposit products.

The FDIC said banks should make sure that firms they partner with do not overstate the reach of deposit insurance. The collapse of firms, including one regulators, was a result of the broad turmoil in the market for overstating deposit insurance coverage.

The FDIC advisory stated that inaccurate representations about deposit insurance by non-banks may confuse the non-bank's customers and cause them to believe that they are protected against any type of loss.

On Thursday, the FDIC and Federal Reserve issued a cease and desist order against now-bankrupt Voyager Digital, charging the company misled customers to believe that funds invested in the brokerage would be guaranteed by the government.

The FDIC said that banks need to make clear to the public that deposit insurance only covers insured banks in case of collapse, and that protection does not extend to the failure of nonbank partners, which can include crypto custodians, exchanges, and wallet providers.