U.S.-based crypto lenders are increasingly under the spotlight following a recent spate of freezing withdrawals by most of the prominent ones. The state’s Department of Financial Protection and Innovation (DFPI) has taken it upon itself to verify if any of the lenders have violated its laws in halting transactions on their various platforms.
DFPI to fish out non-compliant crypto lenders
According to a press release issued on Tuesday, the interest of the DFPI is to fish out the lenders that may have been economical with the truth regarding the potential risks of depositing crypto assets on their platform. And while the department is already eyeing several firms in this regard, it has refused to name any company it is currently investigating.
Meanwhile, the decision of the DFPI to launch the investigation has all to do with a series of top crypto lenders halting withdrawals. Most notably, the likes of Celsius, which announced pending all withdrawals and transfers between user accounts in mid-June. And most recently, Voyager Digital, also first paused withdrawals before going on to file for Chapter 11 bankruptcy.
Although these platforms mostly cite “extreme market conditions” as the reason for their actions, the California investigation wants to know more.
Rising risks of crypto lending
It might be noteworthy that the California DFPI is not new to investigating possible non-compliance among crypto firms, especially lenders. In fact, it has investigated many in the past, recently taking action against them including BlockFi.
Also, there have been numerous public comments from regulatory bodies across the globe regarding the dangers of crypto lending. And in a similarly vocal manner, top politicians have also expressed their concerns. As U.S. Senator Elizabeth Warren said in an email statement in June, the returns that crypto lending platforms claim to give are often “too good to be true.”
In all, the current probe by California DFPI will go a long way in ensuring that investors are fully aware of what they are delving into before making crypto commitments.