Last week, Illinois Governor JB Pritzker signed two landmark pieces of legislation aimed at protecting consumers from cryptocurrency scams and fraud. The Digital Assets and Consumer Protection Act (SB1797) and the Digital Asset Kiosk Act (SB2319) establish comprehensive regulatory frameworks for digital asset businesses operating in Illinois.
In the press release announcing the new legislation, Governor Pritzker stated, “While the Trump Administration is letting crypto bros write federal policy, Illinois is implementing common-sense protections for investors and consumers. At a time when fraudsters continue to evolve and consumer protections are being eroded at the federal level, Illinois is sending a clear message that we won’t tolerate taking advantage of our people and their hard-earned assets.” According to Governor Pritzker, these legislative measures respond to a growing trend of cryptocurrency-related fraud, with Illinois consumers losing $272 million in 2024 alone according to the FBI.
Digital Assets and Consumer Protection Act (SB1797)
The Digital Assets and Consumer Protection Act (DACPA) is designed to regulate digital asset business activities within Illinois, granting the Illinois Department of Financial and Professional Regulation (IDFPR) authority to regulate and supervise digital asset exchanges and other digital asset business. The DACPA creates customer protections in line with those that currently apply to traditional financial services, such as investment disclosures, customer asset safeguards, and customer service standards. Companies in the digital asset marketplace will be required to hold adequate financial resources to operate effectively and have plans and procedures for addressing critical risks, including cybersecurity, fraud, and money laundering, consistent with regulations for traditional financial services.
Key provisions of the DACPA include:
- Scope: The Act applies to any person engaging in “digital asset business activities,” defined as exchanging, transferring, or storing a digital asset on behalf of a consumer or engaging in digital asset administration, with Illinois residents. This does not include: (1) peer-to-peer exchanges or transfers of digital assets; (2) decentralized exchanges facilitating peer-to-peer exchanges or transfers solely through the use of a computer program or transaction protocol that is intended to automatically execute, control, or document events and actions; (3) the development, publication, or dissemination of software; (4) the issuance of a non-fungible token; and (5) validating a digital asset transaction or operating a node to operate in a blockchain system. The Act does not apply to FDIC-insured banks, certain credit unions with member share accounts, and corporate fiduciaries engaged in fiduciary activity, among others.
- Customer Protections: The Act mandates comprehensive disclosures to consumers, including fee schedules, insurance coverage, and error resolution rights. It also requires covered persons to maintain adequate capital and liquidity to ensure financial integrity. Certain consumer protections, such as refunds for fraud victims, are effective immediately.
- Registration and Compliance: Entities engaging in digital asset business activities must register with IDFPR by July 1, 2027. The registration process involves detailed application requirements, including financial statements, business plans, and compliance with anti-money laundering regulations.
- Examination and Enforcement: IDFPR is empowered to enforce the Act through several functions and powers, including revoking licenses, conducting investigations and market surveillance, appointing examiners (at the covered person’s expense), issuing subpoenas, and imposing civil penalties for violations or failure to respond to regulatory requests or reporting requirements. The Act also provides for a private right of action and restitution for affected consumers.
Digital Asset Kiosk Act (SB2319)
The Digital Asset Kiosk Act (DAKA) focuses on the regulation of digital asset kiosks and ATMs, imposing new requirements to prevent scams and fraud.
Key provisions in the DAKA include:
- Definitions and Scope: The Act defines “digital asset kiosk” as an automated teller machine that facilitates the buying, selling, or exchanging of digital assets for fiat currency or other digital assets and “operator” as a person who owns, operates, or manages such a kiosk. The Act applies to all kiosks located within Illinois.
- Registration and Compliance: Operators must register with IDFPR and provide detailed reports on kiosk locations. The Act imposes transaction limits and fee caps to protect consumers, specifically transaction fees are capped at 18% at the kiosks and daily transaction amounts are capped at $2,500 for new customers. Additionally, each operator must designate both a compliance officer and a consumer protection officer.
- Consumer Disclosures: Operators are required to provide clear and conspicuous disclosures before each transaction, detailing transaction terms, potential risks, and refund procedures.
- Fraud Prevention and Refunds: Operators must establish anti-fraud policies and use blockchain analytics to detect fraudulent activities. Full refunds must be issued for fraudulent transactions, contingent upon timely reporting and submission of a police report, for customers who fall victim to scams.
