Dive Brief:

• The Federal Deposit Insurance Corp. (FDIC) is investigating customer-facing marketing language used by Voyager Digital, a spokesperson for the regulator told Bloomberg on Thursday.
• At issue is how the company framed protections given to customer holdings. “In the rare event your USD funds are compromised due to the company or our banking partner’s failure, you are guaranteed a full reimbursement (up to $250,000),” Voyager wrote on its website in 2019, according to The Wall Street Journal.
• Voyager’s banking partner, Metropolitan Commercial Bank, clarified this week that individual Voyager customer accounts are eligible for insurance, but only in the case of a failure of the bank, not if Voyager fails.

Dive Insight:

Voyager’s website text has been updated, scrubbing the reference to failure, Bloomberg reported. “In the rare event your USD funds are compromised, you are guaranteed a full reimbursement (up to $250,000),” the text now reads. 

A further passage, seen by The Wall Street Journal, reads, “Your USD is held by our banking partner, Metropolitan Commercial Bank, which is FDIC insured, so the cash you hold with Voyager is protected.”

Therein lies an important distinction. Customer deposits held in dollars have a backstop. Customer-held crypto assets have no such guarantee.

Voyager filed for Chapter 11 bankruptcy protection Tuesday. The crypto brokerage last week suspended trading, deposits, loyalty rewards and withdrawals on its platform. That move, though temporary, prevents customers from withdrawing their cash deposits, which total more than $350 million. 

That money has been set aside in one custodial Metropolitan Commercial Bank account for customers’ benefit. Within that account, Voyager separates customers’ assets into individual accounts. Voyager didn’t have access to the customer funds for its own purposes, bankers and analysts told The Wall Street Journal. And the money is protected from creditors and held apart from Voyager’s assets in bankruptcy, the outlet’s sources said.

Voyager clients with U.S. dollar deposits in their accounts “will receive access to those funds after a reconciliation and fraud prevention process is completed” with the bank, the crypto brokerage's CEO, Stephen Ehrlich, tweeted Wednesday.

Because the FDIC’s deposit insurance agreement is with Metropolitan and not Voyager, its safety net doesn’t protect customers against Voyager’s default, bankruptcy, withdrawal freeze, or a loss in value, the agency’s spokesperson told Bloomberg.

The agency issued a final rule in May, barring companies from making misrepresentations regarding deposit insurance or misusing the FDIC name or logo. Companies found in violation may be subject to enforcement actions including fines.

The Consumer Financial Protection Bureau, meanwhile, said the issue “has taken on renewed importance with the emergence of financial technologies — such as crypto-assets, including stablecoins.”

A Voyager spokesperson declined to comment to either Bloomberg or The Wall Street Journal about the changes to its website text or the prospect of an FDIC probe.

Frances Coppola, a financial blogger, told Bloomberg the fine print in Voyager’s user agreement was clear regarding FDIC protection.

The amount of cash in Voyager’s customer accounts with Metropolitan tripled over the past three months, the Journal reported — meaning customers were choosing to hold less of their investments in crypto.

Metropolitan Commercial Bank holds about $1.1 billion in deposits tied to crypto, 19% of its total, according to disclosures. Losing Voyager’s business would trim Metropolitan’s earnings by roughly 2% or 3%, Christopher O’Connell, an analyst at Keefe, Bruyette & Woods, told the Journal.