FDIC warns CEX.IO client funds are not insured
The Federal Deposit Insurance Corporation (FDIC) has issued a cease-and-desist letter to Illinois-based crypto exchange CEX.IO to stop falsely claiming that its client funds are insured by the government.
The agency said that the exchange failed to distinguish the FDIC status of its own bank deposits and customers’ funds after a section of its website inaccurately states that “U.S. dollars held in your CEX.IO fiat currency wallet are FDIC-insured up to $250,000 per account.”
“No qualifications, clarifications or limitations are made in connection with this representation, and no insured depository institution or institutions (IDIs) are identified in connection with this statement,” the FDIC noted in its letter.
Under the Federal Deposit Insurance Act, it’s prohibited to use the FDIC’s name or logo to imply customer funds are government insured when they are not. The agency also has the authority to assess civil money penalties against anyone “implying that an uninsured product is FDIC–insured or knowingly misrepresenting the extent and manner of deposit insurance.”
The FDIC demanded that remove any statements or references anywhere that suggest the exchange is FDIC-insured and that any funds held in crypto by it are protected by FDIC insurance.
In a warning to CEX.IO, the FDIC mentioned misrepresentation of FDIC coverage and ordered the firm to remove such false and misleading statements about the FDIC-insured status.
The FDIC ramped up its efforts to police crypto firms that may be misleading investors on whether their funds enjoy a government backstop. It has issued cease and desist letters to five crypto firms, including bankrupt FTX and Voyager Digital, to stop making similar misleading statements. Later, the FDIC urged banks dealing with crypto companies to ensure that their customers are aware of what types of assets are government-insured.
The New York Department of Financial Services (NYDFS) is also investigating Winklevoss-owned exchange Gemini over its communications with Earn customers which contained ambiguous terminology that their GUSD stablecoin deposits are protected by FDIC.
FDIC Chairman Martin J. Gruenberg commented on an observed increase in these kinds of misrepresentations and their impacts on consumers. “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.”
CEX.IO holds a money service business (MSB) status with the Financial Crimes Enforcement Network (FinCEN), which allows a company to act as a money transmitter in the United States with a stringent independent annual audit.
Since 2015, CEX.IO’s trading services have been available in the US with a growing number of Money Transmitter Licenses under their belt.
