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OKCoin was warned by FDIC over promotional materials
California-based OKX-affiliated crypto exchange OKCoin USA Inc. has received a letter from the FDIC asking it to stop using the agency's name to bolster its legitimacy. Possible FDIA Violation In the letter addressed to OKCoin CEO Hong Fang, the exchange warned 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 an uninsured or potentially uninsured deposit is actually covered by the FDIC, whether in promotional materials or documents. In the case of OKCoin, the FDIC…
OKCoin was warned by FDIC over promotional materials
California-based OKX-affiliated crypto exchange OKCoin USA Inc. has received a letter from the FDIC asking it to stop using the agency's name to bolster its legitimacy.
Possible FDIA violation
In the letter addressed to OKCoin CEO Hong Fang, the exchange warned 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 an uninsured or potentially uninsured deposit is actually covered by the FDIC, whether in promotional materials or documents. In the case of OKCoin, the FDIC has now made it clear that there is no insurance.
"OKCoin is not FDIC insured and the FDIC does not insure no-deposit products. Because there is no distinction between U.S. dollar deposits and crypto assets, the statements imply that FDIC insurance coverage applies to all customer funds (including crypto assets). Additionally, the FDIC does not insure or endorse any particular blockchain. Accordingly, these statements are likely to mislead and potentially harm consumers."
According to the FDIC, OKCoin did this on three separate occasions, including a Twitter post that appears to have been deleted - in which the company's chief marketing officer claimed that deposits were insured by the agency for people in the US. The following tweet is the one linked to the FDIC's letter. A search of the Internet Archive for the original tweet returned no results.
Join the COO of OKCoin @JasonKLau and CMO @HaiderSF & a special guest from @Blockstack for one #AMA at 10:00 a.m. PST Wed. Dec. 16
What does it mean for #OKCoin to be the first US exchange to list $STX?
Mark your questions #OKCoinAMA
Sign up now: https://t.co/8hPAAab0Ia pic.twitter.com/9yNHwCYklN
– Okcoin (@Okcoin) December 15, 2020
However, the claim for FDIC insurance is still listed in a promotional blog post written by OKCoin.
FDIC action consistent with previous statements
This is not the first time the FDIC has ordered crypto-related companies to stop using the institution to give legitimacy to their platforms. Last year, five exchanges were served with similar letters, including FTX and Voyager Digital.
The regulator has also released general guidelines that crypto companies must adhere to when approaching the FDIC.
According to current guidelines, customers of a failed crypto platform will only be rescued if the exchange's bank already has an insured account. Additionally, it is expressly noted that neobanks are not covered by FDIC insurance.
“FDIC insurance does not protect non-bank customers from the failure, insolvency, or bankruptcy of non-bank entities, including crypto custodians, exchanges, brokers, wallet providers, or other entities that appear to mimic banks but are not.” “Neobanks.”
OKCoin now has 15 business days to remove all mentions of FDIC insurance on its platform and on its employees' accounts. Otherwise, the FDIC will take legal action against the exchange.
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