Katherine Kirkpatrick Boss
The Illinois Legislature has taken sweeping steps to bring significant results to more than 300 startups and legacy institutions innovating Illinois blockchain and cryptocurrency.
The Digital Assets and Consumer Protection Act (DACPA), sponsored by Senator Mark Walker of Buffalo Grove, was proposed under the guise of consumer protection, but in reality, it does little to protect Illinois consumers. If signed into law, it imposes a forceful regulatory and burdensome licensing regime on Illinois entrepreneurs, imposing large regulators on institutions that minimize the recent process of “minimizing licenses as self-description as CRISIS” to the Illinois Department of Financial and Professional Regulation (IDFPR).
Let’s be clear: Digital asset communities, including blockchain and crypto entrepreneurs, support wise and targeted regulations to protect consumers and hold bad actors accountable. However, the bill has not achieved it and fails in several ways for entrepreneurs and consumers.
First, the bill provides Illinois consumers with false sense of security against crypto fraud and bad actors. Legal Chicago-based crypto companies generally don’t target older consumers, but they will pay for the bill.
Second, the bill could extend to many startups, students and technicians experimenting with how blockchain can be used to solve real-world problems, as well as regulating central exchanges or other companies that detain crypto for users in Illinois, as well as to solve real-world problems. The result is two-tier system innovation, where the only resourced legacy organization with capital and resources navigating the license is the only one. It goes against everything in Illinois.
Furthermore, the operating cryptocurrency companies are already subject to a lot of surveillance. The Illinois Department of Finance and Specialty Regulation, the Illinois Attorney General, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Department of Justice can all take action against someone who fraudulent Illinois residents. Beyond that, many companies interacting with Illinois consumer financial assets may need to hold remittance licenses issued through IDFPR, while companies holding crypto assets may already need to seek Illinois trust licenses. Adding bureaucracy and confusion to this burgeoning industry will not help anyone.
The bill also assumes that IDFPR is already manipulating constrained resources — but within the coming months, it is being prepared to regulate one of the world’s most technically complex and fastest sectors, with just a handful of new staff they will hire. The agency is already responsible for regulating professional licensing for more than 1.2 million Illinois residents, and is struggling to meet existing demand. Last year, Illinois doctors and nurses realized they were at risk of losing their jobs due to delayed licenses.
For that credit, IDFPR deployed a new online application system (Core) four months ago. However, as of today, the agency has converted three of its over 300 licenses to an online system, and publicly states that it will take more than two years to convert the rest. It is irresponsible to assume that such a short runway can handle licenses from many companies that provide cryptocurrency services to Illinois residents.
Illinois doesn’t need to guess what will happen if these bills are signed into law. Through the 2015 regulatory guidance, we can look at New York, which has established a similar licensing regime (New York Bit Resense). Since then, state regulators have approved just 34 Bitlicense applications, spurring many crypto companies to New York residents. The Illinois licensed version extends a wider range of regulators than New York’s Bitlisense, so it’s safe to say the outcome is more important.
Currently, a considerable number of crypto companies are looking at their resumes to the US. Regulations such as the DACPA continue to plunge Illinois into a list of realistic places to build technology companies.
While lawmakers may believe they are protecting consumers, they are pushing innovators, investors and job creators into a more friendly jurisdiction. Illinois needs a narrowly targeted, functional, manageable cryptocurrency regulatory structure. Senate Bill 1797 and House Bill 742 should not move forward until IDFPR is fully modernised and the scope of the law is significantly narrowed.
• Senate Bill 1797 passed the Illinois Senate on April 10th. He was assigned to the Illinois House of Representatives Financial Institutions and Licensing Committee on April 17th.
•Katherine Kirkpatrick Bos is the general counsel of Starkware, a developer of cryptographic zero knowledge proof systems that seek to improve blockchain scalability and a member of the Illinois Blockchain Association’s board of directors.
