Insurers curb coverage of crypto firms’ risks after the FTX collapse

Insurance companies are denying cooperation or cutting coverage for clients who interacted with the FTX exchange going through bankruptcy proceedings. Reuters reports.

The firms are depriving trading platforms and market makers of the ability to distribute risk from hacks, thefts or lawsuits, several market participants said.

Fears of contagion among crypto firms have further dampened interest in the sector. Previously, the high volatility of digital assets and regulatory uncertainty did not help.

The Lloyd’s of London and Bermuda markets have begun demanding greater transparency from firms regarding potential dealings with FTX.

Potential proposals envisage broader exclusions from standard policies for any claims arising from the fallout of the Bitcoin exchange’s collapse.

Relm co-founder Joe Ciolkovski explained that the least risky segments such as custodians with cold storage technology for digital assets could receive coverage of up to $1 billion.

The same figure, applied to insuring executives and other officers for the rest of the market, may be limited to tens of millions of dollars, the specialist said. Realm specializes in working with crypto firms.

An additional consequence of the changed business environment has been rising insurance premiums. According to Kyle Nichols, president of the Hugh Wood Canada brokerage, to insure $1 million in digital assets against crime risk, a trader now must pay $30,000–40,000 versus $5,000 typical for traditional financial markets.

Earlier, the U.S. Department of Justice charged former FTX chief Sam Bankman-Fried in eight criminal counts, including conspiracy and wire fraud.

The founder of FTX has also faced lawsuits from U.S. regulators. SEC with organizing a fraudulent scheme, deceiving investors and misusing customer funds. CFTC charged him with violations of the Commodity Exchange Act.

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