US regulator urges banks to make sure of deposit insurance

A US banking regulator is urging banks dealing with cryptocurrencies companies 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 on Friday it was concerned that consumers may be confused about how safe their money may be when placing incryptocurrencies, particularly in cases where firms offer uninsured products alongside insured bank deposit products.

The FDIC said banks need to make sure that the firms they partner with do not overstate the reach of deposit insurance. The rise came after the collapse of some high-profile firms, including one regulators, publicly chastised for overstating deposit insurance coverage because of the broad turmoil in the market.

The FDIC said that inaccurate representations about deposit insurance by non-banks, includingcryptocurrencies, can confuse the non-bank's customers and cause those customers to believe 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 banks need to make clear to the public that deposit insurance covers only insured banks in case of collapse, and that protection does not extend to the failure of any nonbank partners, which can include crypto custodians, exchanges, and wallet providers.