The FDIC warned OKX-affiliated exchanges that using its name to gain credibility could violate banking laws.
California-based OKX-affiliated cryptocurrency exchange OKCoin USA Inc. has received a letter from the FDIC urging it to stop using the agency’s name to bolster its legitimacy.
Potential FDIA Violations
The letter, addressed to OKCoin CEO Hong Fang, warned the exchange that it may be violating Section 18(a)(4) of the Federal Deposit Insurance Act (FDIA).
This section of the FDIA prohibits companies and individuals from claiming that the FDIC actually covers deposits that are not or may not be insured, whether in promotional materials or documents. In the case of OKCoin, the FDIC has now made it clear that it does not provide insurance.
“OKCoin is not FDIC insured, and the FDIC does not insure non-deposit products. By not distinguishing between U.S. dollar deposits and crypto assets, the statement implies that FDIC insurance coverage applies to all customer funds (including crypto assets). In addition, the FDIC does not insure or endorse specific blockchains. Therefore, these statements may be misleading and could harm consumers.”
According to the FDIC, OKCoin has done so on three separate occasions, including in a seemingly since-deleted Twitter post in which the company’s chief marketing officer claimed that deposits are insured by the agency for Americans. The tweet below is the one associated with the FDIC’s letter. A search for the original tweet on Internet Archive yielded no results.
However, the claim for FDIC insurance is still listed in the promotional blog post written by OKCoin.
The FDIC’s action is consistent with previous statements
This is not the first time that the FDIC has ordered cryptocurrency-related companies to cease and desist from using the agency to grant legitimacy to their platforms. Last year, five exchanges received similar letters, including FTX and Voyager Digital.
The regulator also issued general guidelines that cryptocurrency companies should follow when referring to the FDIC.
Under current guidelines, the only scenario in which a failed crypto platform can get its customers bailed out is if the exchange already has an insured account with its bank. Furthermore, it is explicitly stated that new banks are not covered by FDIC insurance.
“FDIC insurance does not protect non-bank customers from the default, insolvency, or bankruptcy of any non-bank entity, including cryptocurrency custodians, exchanges, brokers, wallet providers, or other entities that appear to emulate a bank but are not actually known as a ‘neo-bank.’”
OKCoin now has 15 business days to remove all references to FDIC insurance from its platform and employee accounts. Otherwise, the FDIC will take legal action against the exchange.