Due to the failure of exchange FTX, insurers are increasingly refusing or drastically limiting coverage to clients associated with cryptocurrencies. Insurance firms are already hesitant to offer coverage to crypto enterprises due to inconsistent regulation and unstable cryptocurrency prices. In light of the FTX collapse, fewer will now be ready to underwrite asset and directors and officers (D&O) protection policies for these firms.
Different insurers have been adopting particular strategies for businesses that have been exposed to FTX. One has asked clients to complete a survey about their involvement with the bankrupt exchange. These concern things like whether they owned assets on the exchange or made investments in FTX.
Some people question if insurance companies will pay for D&O policies at linked companies given the problems with FTX’s leadership. In the event of a litigation, D&O policies are typically applied to cover legal expenses. These policies do not always pay out in fraud instances, which FTX may prove to be.
Analysts claim that the most financially stable cryptocurrency businesses would be able to secure coverage of up to $1 billion. At this stage, a D&O insurance policy might only provide coverage up to tens of millions of dollars for the rest of the market.
Working with cryptocurrency businesses is becoming more and more risky for players in the financial industry, not just insurers. Deloitte, Ernst & Young, KPMG, and PwC announced earlier this week that they would not collaborate with Binance to audit its proof-of-reserves.
The Big Four accounting firms reportedly stated they are “now unwilling” to carry out such an audit for a private cryptocurrency company, according to the largest cryptocurrency exchange in the world.
While these businesses have stated that they won’t accept any more such work, they have omitted to state if they will stop serving customers that use cryptocurrencies. For instance, Deloitte and the American cryptocurrency exchange Coinbase have a long history.