The Illinois Department of Financial and Professional Regulation has issued a 9-page report expressing its interpretation of how the Illinois’ Transmitters of Money Act (TOMA) applies to digital currencies. Most notably, the Department declined to classify cryptocurrency as money and decided that most digital currency transactions fall outside of the purview of TOMA unless they involve a third-party intermediary.
Illinois Denies Cryptocurrency is Money
Significantly, the Department explicitly states that decentralized digital currencies do not fall under the regulatory classification of “money” because they “lack intrinsic value,” have not been adopted as government currency, and are “not convertible by law.” As the report states:
Accordingly, although digital currencies are a digital representation of value that is used as a medium of exchange, store of value, or unit of account, they are not considered money for the purposes of TOMA as digital currencies have not been “authorized or adopted by a domestic or foreign government as a part of its currency.”
In fact, the Department states that cryptocurrency could represent an entirely new asset class:
Decentralized digital currency can also be considered a new asset class that is neither currency nor commodity.
That does not mean cryptocurrencies are free from regulation in Illinois, however. Digital currency may fall subject to TOMA regulatory and licensure requirements when they become involved in a transaction that also involves what TOMA classifies as money. “However, should transmission of digital currencies involve money in a transaction, that transaction may be considered money transmission depending on how the transaction is organized. Any person or entity engaging in a transaction involving both digital currencies and money should request a determination from the Department on whether or not such activity will require a TOMA license,”
When Cryptocurrency Transactions Fall Subject to Regulation
According to these guidelines, the Department lists the following activities as money transmission and thus subject to TOMA regulation and licensure:
- Exchanges in which digital currency and money is transmitted through a third-party escrow service
- Exchanges through Bitcoin ATMs and other automated machines that operate as third-party intermediaries between buyers and sellers
In other words, cryptocurrency transactions fall subject to TOMA regulation when a third-party facilitates the monetary transaction between the buyer and seller.
Importantly, businesses participating in the business of money transmission must comply with TOMA’s net worth requirements. Per this regulation, a business with a single location must have a net worth of at least $35,000 (Digital currency holdings owned by the business do count toward that requirement.).
The guidelines also explicitly state that the following economic activities do not qualify as money transmission and are not subject to TOMA regulation and licensure:
- The transfer of digital currency, including the exchange of one digital currency for another
- The direct purchase or sale of digital currency for money between two parties; this includes exchanges through Bitcoin ATMs and automated machines that conduct transactions in which the operator is either the buyer or the seller and there is no third-party intermediary
- The payment of digital currency for goods or services
- Third-party digital currency payment processing
- Digital currency mining
- Multi-signature transactions
- Blockchain 2.0 activities, including transmitting colored coins executing and smart contracts
Nevertheless, the Department recommends both individuals and businesses seek a licensure determination before participating in a transaction which involves both money and digital currency.
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