Insurance Companies Wary of Clients Tied to Crypto Exchange FTX

Insurers have begun denying coverage to customers with exposure to collapsed crypto exchange FTX.

This has left digital currency traders and exchanges without protection from hacks, lawsuits, or theft, a number of market participants said in a Reuters story published Monday (Dec. 19).

Specialists in the Lloyd’s of London and Bermuda insurance markets are seeking more transparency from crypto firms about their exposure to FTX, the report said. Insurers are also proposing sweeping policy exclusions for any claims stemming from the company’s collapse.

Lloyd’s of London broker Superscript is giving clients that dealt with FTX a mandatory questionnaire to outline the percentage of their exposure, said Ben Davis, lead for digital assets at Superscript.

“Let’s say the client has 40% of their total assets at FTX that they can’t access, that is either going to be a decline or we’re going to put on an exclusion that limits cover for any claims arising out of their funds held on FTX,” Davis told Reuters.

Insurance companies are making this shift amid calls for greater oversight of the cryptocurrency sector following the demise of FTX. As PYMNTS wrote last week, crypto regulation is set to become a major focus for U.S. lawmakers.

“The past year of so-called ‘crypto winter’ market dips and high-profile implosions have fueled criticisms of inaction by Washington’s watchdogs, as American consumers saw their speculative investments disappear,” PYMNTS wrote.

There are a number of bipartisan legislative initiatives on the docket, and lawmakers in general seem to be making a concerted push across the aisle to better protect U.S. investors.

“If we are going to learn from FTX’s meltdown, we must look closely at the risks,” said Sherrod Brown, the Senate Banking Committee’s chairman, during a public hearing last week. “It means thinking about the kinds of disclosure that consumers and investors really need to understand how a token or crypto platform works.”

Last week also saw Democratic Sen. Elizabeth Warren, who spoke during the Senate Banking Hearing, and Republican Sen. Roger Marshall introduce new legislation meant to police the crypto industry.

The proposed “Digital Asset Anti-Money Laundering Act of 2022” is meant to establish know-your-customer (KYC) controls for blockchain infrastructure actors and crypto industry participants, including developers and even crypto miners.