Chicago-based crypto companies would have a much harder time operating if Senate Bill 1797 and House Bill 742 were to become law. These bills would be major steps in protecting consumers and regulating the burgeoning cryptocurrency industry in Illinois. Critics further contend that the regulations would be overly expansive. They are concerned that these rules may suppress innovation and impose undue burdens on law-abiding enterprises. It’s up to the Illinois Department of Financial and Professional Regulation (IDFPR) to implement and enforce these new regulations. There is worry about whether the department has the requisite wherewithal to deal with the nuances of a highly dynamic and quickly changing global trade in cryptos.
First, if passed, Senate Bill 1797 will pass the Illinois Senate on April 10. On April 17, the Illinois House Financial Institutions and Licensing Committee passed the bill. This assignment is an important step on its legislative road.
The Illinois Department of Financial and Professional Regulation (IDFPR) is already struggling to keep up with its current workload. The DBPR manages professional licensing for more than 1.2 million Illinois residents. The department has continually been unable to catch up with the overwhelming current demand for licensing resulting in months-long delays.
Just last year, backlog and processing license delays threatened the livelihood of Illinois doctors and nurses. The IDFPR is in the midst of modernizing its processes to eliminate these delays. Their efforts have so far moved at a glacial pace. So far, the department has only transitioned three of its 300+ licenses to an online format. Indeed, it will take more than two years just for the conversion of the remaining licenses to run its course.
The proposed cryptocurrency regulations would further burden the IDFPR. The bill operates under the unrealistic assumption that the department would be prepared to regulate such a technologically complex and fast-moving sector within just a few months.
Illinois' version of the license extends broader regulatory authority than New York's BitLicense. While the bill aims to regulate centralized exchanges, it would apply more broadly to any startup, student, or technologist working with blockchain technology.
Critics are especially concerned that the wide net these proposed regulations would cast would effectively create an inequitable two-tier system. For one, only well-resourced, legacy organizations will have the capital and resources necessary to carry themselves through such a cumbersome and expensive licensure process. This has the potential to greatly reduce innovation and put smaller companies and individuals at a disadvantage.
A regulatory framework that is narrowly targeted, functional, and manageable, including preemption, is required for the cryptocurrency industry to thrive in Illinois. This would enable continued innovation in this space while protecting consumers and ensuring we’re not making room for illicit activities.
We urge that the current versions of Senate Bill 1797 and House Bill 742 be withdrawn. We have to fully modernize the IDFPR and very greatly narrow the scope of the law down first. Moving these bills quickly into law may lead to unintended consequences. This would drive innovation and businesses out of Illinois. As a result, it may inhibit the expansion of the burgeoning cryptocurrency sector within the state.
