OKCoin USA Inc., a California-based cryptocurrency exchange affiliated with OKX, has received a letter from the Federal Deposit Insurance Corporation (FDIC) warning it to cease using the agency’s name to enhance its legitimacy. The FDIC has cautioned that failure to comply could lead to legal action against the exchange.
The FDIC’s letter, addressed to OKCoin CEO Hong Fang, highlights a potential violation of Section 18(a)(4) of the Federal Deposit Insurance Act (FDIA). This section prohibits companies and individuals from falsely claiming that an uninsured or potentially uninsured deposit is covered by the FDIC, whether in promotional materials or documents. The FDIC has explicitly stated that insurance is not provided by OKCoin.
The FDIC’s letter states, “OKCoin is not FDIC-insured, and the FDIC does not insure non-deposit products. By not distinguishing between US-dollar deposits and crypto assets, the statements imply FDIC insurance coverage applies to all customer funds (including crypto assets). In addition, the FDIC does not insure or endorse particular blockchains. Accordingly, these statements are likely to mislead, and potentially harm, consumers.”
Compliance Required within 15 Business Days
According to the FDIC, OKCoin has made such misleading claims on three separate occasions. One instance was a now-deleted Twitter post in which the Chief Marketing Officer of the firm asserted that deposits are insured by the FDIC for U.S. individuals. The FDIC’s letter includes a link to the tweet, although no archived results were found. Additionally, the claim of FDIC insurance is still present in a promotional blog post on OKCoin’s platform.
This warning from the FDIC follows a series of similar letters sent to crypto-related companies in the past. Last year, five exchanges, including FTX and Voyager Digital, were instructed to cease and desist from using the FDIC’s name to establish legitimacy. The FDIC also issued guidelines for cryptocurrency companies regarding their references to the agency.
The current guidelines make it clear that the FDIC will only protect clients of a failed crypto platform if the platform had an already insured account with a bank. It is explicitly stated that neobanks, or non-banks, are not covered by FDIC insurance.
OKCoin has been given a deadline of 15 business days to remove all references to FDIC insurance from its platform and employee accounts. Failure to comply may result in the FDIC pursuing legal action against the exchange.
The FDIC’s action serves as a reminder to cryptocurrency companies to accurately represent the extent of deposit insurance coverage provided, safeguarding consumers from potential harm and ensuring transparency within the industry
