Based in California, the OKX-affiliated crypto exchange OKCoin USA Inc. has received a letter from the FDIC urging it to stop using the agency’s name to bolster its legitimacy or else.
The letter, addressed to OKCoin CEO Hong Fang, warned the exchange that it is in potential violation of 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 clearly stated that insurance is not provided.
“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.”
According to the FDIC, OKCoin has done so on three separate occasions, including a Twitter post that seems to have been deleted – in which the Chief Marketing Officer of the firm claimed deposits are insured by the agency for people in the U.S. The tweet below is the one linked to the FDIC’s letter. A search on the Internet Archive for the original tweet provided no results.
Join OKCoin COO @JasonKLau and CMO @HaiderSF & a special guest from @Blockstack for an #AMA at 10:00 AM PST Wed. Dec. 16th
What does it means for #OKCoin to be the first US exchange to list $STX?
Tag your questions #OKCoinAMA
Sign up now: pic.twitter.com/9yNHwCYklN
— Okcoin (@Okcoin) December 15, 2020
However, the claim for FDIC insurance is still listed on a promotional blog post written up by OKCoin.
This is not the first time the FDIC ordered crypto-related companies to cease and desist from using the institution to grant their platforms legitimacy. Last year, five exchanges were served with similar letters, FTX and Voyager Digital among them.
General guidelines for crypto companies to abide by when referring to the FDIC were also published by the regulator.
According to the current guidelines, the only time a failed crypto platform will have its clients bailed out is if the bank that the exchange had an already insured account. Furthermore, it is explicitly stated that neobanks are not covered by FDIC insurance.
“FDIC insurance does not protect a non-bank’s customers against the default, insolvency, or bankruptcy of any non-bank entity, including crypto custodians, exchanges, brokers, wallet providers, or other entities that appear to mimic banks but are not, called “neobanks.””
OKCoin now has 15 business days to take down all mentions of FDIC insurance on its platform and on the accounts of its employees. Failing that, the FDIC will take legal action against the exchange.
