Woodstock Institute wrote to the Illinois Department of Financial and Professional Regulation (IDFPR) to comment on their proposed rules creating an oversight and regulatory framework for the digital assets industry in Illinois. IDFPR is working under the legal parameters established by the Digital Assets Consumer Protection Act and the Digital Assets Kiosks Act, both of which Woodstock supported.
The broader context of this moment is important to highlight. At a time of sweeping financial deregulation at the federal level, states must step up to protect consumers.
General Comments
In the proposal, IDFPR states that digital assets activity that would be subject to these rules is exempt from the rules governing money transmitters, to avoid redundancy. We urge IDFPR to ensure no crucial consumer protections are lost to that exemption. A trend towards a larger swath of registrants without a money transmitter license could signal trouble if it reflects an attempt to avoid regulatory oversight.
We also highlight three items in the Definitions section of the proposed rules that could benefit from clarification, including the terms “digital asset,” “money,” and “permitted payment stablecoin issuer.”
Stablecoins
Woodstock Institute values the attention paid to stablecoin issuers’ risk mitigation policies in these proposed rules, including the affirmative obligations for issuers to right-size or rebalance reserves at close of business each day (as needed) and conduct monthly checks of the appropriateness of reserve levels.
We also appreciate that the proposed rules require stablecoin issuers to park their reserves in certified depository institutions or approved custodians, but we encourage IDFPR to also specify caps on an issuer’s deposits at any one financial institution. As Silicon Valley Bank demonstrated, runs on a stablecoin could harm the bank(s) holding that stablecoin issuer’s reserves.
Digital Asset Kiosks
Woodstock urges IDFPR to make an address list of kiosks publicly available as expeditiously as possible. As raised in our 2024 subject matter hearing testimony, crypto kiosk fraud is rampant, and fees have historically been extremely high. Illinois should monitor the progress of other states in regulating crypto kiosks to learn about regulatory best practices that should be implemented here.
