The Federal Deposit Insurance Corp. on Monday ordered neobank Utoppia Inc. to immediately correct wrongful claims or implications of deposit insurance.
Utoppia Inc. is a neobank that offers cryptocurrency wallets and says it provides U.S. FDIC-insured bank accounts to non-U.S. residents. FDIC says the institution not only misled customers into thinking the nonbank was an FDIC-insured institution, but in multiple languages, as it offered foreign residents purported FDIC-insured U.S. bank accounts in both English and Spanish.
As recently as January 5, 2023, the agency says
Much of FDIC's concern seems to be with the lack of clear labeling as to how customer funds are managed and the ambiguity of their claims of FDIC insurance. In the fine print at the bottom of its website, Utoppia does say its cash management services are provided by another nonbank — Synapse Brokerage LLC. The site says Synapse facilitates the deposit of uninvested customer cash balances into certain FDIC-insured bank accounts at Synapse program banks. This inconspicuous labeling, however, could come off as deceptive to the FDIC, which has authority to act on instances where non-insured companies even vaguely suggest FDIC insurance.
Along with conflating its brokerage services with actual deposit taking — the latter being something that, by law, only banks can do — the FDIC said Utoppia failed to clearly disclose which depository institutions, if any, were in fact parking customers' money in what Utoppia claimed were FDIC-insured accounts.
"Whenever anyone other than an insured depository institution states that a product is insured by the FDIC, that person must identify the insured depository institution(s) where the funds will be placed," the FDIC wrote in its letter. "Failure to do so constitutes a material omission in violation of Section 18(a)(4) of the FDI Act and Part 328."
"The statements that Utoppia is 'insured by' or backed or protected by ('respaldado') the FDIC and the statement that customers' 'funds are FDIC protected' could suggest or imply that Utoppia is itself FDIC-insured,'" the agency wrote. "The statements imply FDIC insurance coverage applies to all customer funds (including crypto assets)."
FDIC Chairman Martin J. Gruenberg said he has seen in recent years an observed increase in these kinds of less-than-true statements from nonbanks, that these harm consumer confidence, financial stability and the FDIC's long established reputation for safeguarding depositor funds.
"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," he wrote.
In a string of enforcement actions this year, the FDIC seems not to be letting up on false representations by nonbank financial institutions, and
The rule is pursuant to a clause in the Federal Deposit Insurance Act that prohibits any entity from representing or implying that an uninsured product — like cryptocurrency — is FDIC-insured, or from deliberately mischaracterizing the extent and nature of deposit insurance coverage. The FDI Act also prevents companies from suggesting their products are FDIC-insured by using the agency's name or logo.
