- Cryptocurrency exchange Binance US has withdrawn FDIC insurance for user funds.
- The exchange faces regulatory heat from the US Securities and Exchange Commission (SEC).
- The SEC lawsuit ramifications are spilling over.
In a significant policy change, Binance US, the American arm of the global cryptocurrency exchange Binance, has revoked FDIC insurance coverage for user funds.
The move comes amid an ongoing legal battle with the US SEC, which has accused the exchange of violating federal securities laws.
The FDIC insurance withdrawal
Binance US users were previously covered by FDIC insurance, providing a level of protection for their cryptocurrency holdings. However, following an update in their terms of service, the exchange has informed users that their crypto deposits are no longer insured by the Federal Deposit Insurance Corporation (FDIC).
The updated terms explicitly state, “Digital Assets are not legal tender, are not backed by any government, and accounts and value balances are not subject to protections or insurance provided by the FDIC or the Securities Investor Protection Corporation (SIPC).”
This change places the responsibility for asset security squarely on the users themselves.
International ramifications of the SEC Lawsuit
Binance US’s decision to withdraw FDIC coverage is connected to an SEC lawsuit filed against Binance, Binance US, and its founder, Changpeng Zhao (CZ). The SEC’s legal action alleges various securities law violations, including falsely declaring trading controls and engaging in unregistered securities sales, violating investor protection regulations.
Furthermore, the SEC claims that CZ and Binance secretly controlled the operations of Binance US, raising concerns about transparency and potential conflicts of interest. The regulator also alleged that customer funds were covertly transferred to a separate entity called Merit Peak Limited, under CZ’s control.
The SEC’s actions have not only impacted Binance US but have also drawn international regulatory scrutiny. In response to the lawsuit, Binance withdrew from operations in several countries, illustrating the global implications of regulatory actions in the cryptocurrency space.