Illinois Senate Passes Bill to Tighten Crypto Regulations

The Illinois Senate has taken a significant step towards combating crypto-related crimes with the passage of the Digital Assets and Consumer Protection Act. Senate Bill 1797, introduced by Senator Mark Walker, was approved with a 39-17 vote on April 10. This legislation aims to bring crypto businesses under tighter scrutiny by mandating registration with the Illinois Department of Financial and Professional Regulation before they can operate within the state.

The bill includes several key provisions designed to enhance transparency and accountability in the crypto industry. Any firm offering digital asset services to Illinois residents, regardless of their location, must register with the state. Additionally, crypto companies are required to disclose their full fee structure, inform users about the insurance status of their assets, and explain key risks, including the potential loss of funds due to fraud, outages, or security breaches.

To further protect consumers, the bill imposes strict regulations on crypto exchange practices. Platforms listing crypto tokens must assess security risks, disclose potential conflicts of interest, and conduct regular reviews to ensure the token remains fit for listing. Before listing any token, platforms must report to the Department of Financial and Professional Regulation regarding their measures to prevent manipulation, price rigging, and insider-driven scams. Moreover, businesses are required to store user assets separately from their own and are prohibited from using customer funds for lending or other purposes without consent. In the event of a company's bankruptcy, these assets would be legally protected and treated as trust property.

The legislation also establishes a framework for complaint handling and customer service. Covered firms must offer toll-free helplines and clearly defined processes for dispute resolution and fraud reporting. This move comes amid rising concerns over crypto-related scams in Illinois, with the state ranking sixth nationwide for losses from crypto fraud in 2023, according to FBI data. The anonymous nature of crypto has made it notoriously tough to bring fraudsters to justice, highlighting the need for guidelines and accountability to rebuild public trust in the space.

Similar consumer protection measures have been implemented in other U.S. states in response to the growing prevalence of crypto scams and frauds. For instance, California recently amended AB 1052 to expand protections for crypto payments and self-custody, while North Dakota's HB 1447 targets crypto-ATM-related fraud through stricter licensing, daily caps, and reporting rules. These legislative efforts underscore the broader trend towards enhancing regulatory oversight in the crypto industry to safeguard consumers from potential financial losses and prevent the misuse of digital assets.