SPRINGFIELD — Continuing protections against consumer fraud and scams for cryptocurrency customers, State Senator Laura Ellman presented legislation that would establish crypto regulations to the Senate Executive Committee during a subject matter hearing Wednesday.
“Illinoisans have lost out on their time, earnings and sense of financial security because of an unregulated financial industry — cryptocurrency,” said Ellman (D-Naperville). “From unregulated crypto ATMs to mobile applications, victims of fraud deserve answers and action. It is time we join other states in protecting consumers with a transparent set of regulations that brings us into the 21st century.”
Following the rise in bankruptcies by digital asset transactions, other states have taken action to regulate crypto currency in their money transmission laws, including New York, California and Louisiana. Most states have a clear regulatory system specifically for digital asset businesses and regulate cryptocurrency under their money transmission laws, but Illinois currently does not have such protections in place.
With a clear need for digital asset regulation in Illinois, Ellman is leading Senate Bill 3666 and Senate Bill 3765 that would create a regulatory framework for digital asset businesses kiosk operators to follow. Senate Bill 3666 would require digital asset exchanges and other digital asset businesses to register with the Illinois Department of Financial and Professional Regulation in order to operate in Illinois, as well as enhance the state’s authority over trust companies by creating a special purpose trust company that allows for the safekeeping of customers’ digital assets. Senate Bill 3765 would protect customers from scams and excessive fees by capping the amount a person can deposit into or withdraw from a digital asset kiosk and limiting the fees that are charged for each transaction.
“Illinois consumers should be able to rely on state laws to assure that the financial entities they are dealing with have a level of oversight and regulation over financial services,” said Ellman. “By closing the regulatory gap that leaves this industry unchecked, we can prevent fraud, protect consumers and establish transparency and trust within the cryptocurrency marketplace.”
According to the Pew Research Emerging Technology Survey, about one in five Americans have invested in crypto throughout their lives and nearly 44% of crypto users are people of color. With cryptocurrency rising in popularity and purchasing crypto becoming more accessible, customers are facing fraud and scams through various unregulated crypto services.
Currently, IDFPR reports Illinois residents have lost at least $45 million to cryptocurrency scams between 2015 and 2022. Representatives from IDFPR testified in support of Ellman’s legislation, citing the number of complaints related to scams and fraud surrounding crypto applications and kiosks.
“For those who are students of history, the challenges related to innovative financial products are not new. In the early 20th century, there was a surge in new stock and bond offerings that became a serious problem, and since there weren’t federal regulations at the time, states passed security laws to ensure that residents were protected,” said David W. DeCarlo, Regulatory Innovation Officer, IDFPR. “Today, we are seeing a replay of that history with digital assets.”
Senate Bill 3666 and Senate Bill 3765 await further action.