California’s Department of Financial Protection and Innovation (DFPI) has announced it is “actively investigating” crypto lenders offering crypto interest accounts.
Multiple US-based lenders face investigation after indefinitely halting transfers and withdrawals between user accounts.
Targeted Companies Fail to Disclose Deposit-Related Risks
While none of these lending companies has been named, the regulator has hinted that those offering interest-bearing crypto-asset accounts, and service providers that have failed to adequately disclose deposit-related risks, will be a focus:
The Department warns California consumers and investors that many crypto-interest account providers may not have adequately disclosed risks customers face when they deposit crypto assets onto these platforms.
California Department of Financial Protection and Innovation
In the months leading up to the regulator’s decision, several prominent crypto lenders – notably Celsius – have frozen withdrawals and transfers. Behind these freezes is the liquidity crisis kickstarted by the recent and intense market downturn, which saw bitcoin fall below US$20,000 multiple times in June alone.
The California regulator’s decision to mount its investigation also comes after public comments from politicians and other regulators cautioning consumers over the risks of crypto lending.
Crypto Lenders a Hot Topic
Crypto lenders have been the talk of the town in recent times. Last month, crypto services business Nexo sought to purchase “qualifying” assets from rival crypto lender Celsius. This followed perceptions of Celsius’ impending insolvency as it froze user withdrawals and transfers over “extreme market conditions”.
Earlier this month, crypto lender BlockFi signed a contract with FTX US, a division of Sam Bankman-Fried’s crypto exchange. The partnership would see FTX increase its credit facility with BlockFi and provide an opportunity for FTX to potentially acquire the struggling lender. BlockFi co-founder Zac Prince stated that the deal was valued at up to US$680 million, with an additional US$400 million revolving credit facility.