The Illinois Department of Financial and Professional Regulation (“Department”) has released a proposed Digital Currency Regulatory Guidance (“Guidance”). It “expresses the Department’s interpretation of Illinois’ Transmitters of Money Act (“TOMA”) and its application to various activities involving digital currencies.” The Department “seeks to establish the regulatory treatment of decentralized digital currencies under existing definitions of money transmission in Illinois, as defined in the [TOMA],” but acknowledges that “digital currencies currently do not fit the statutory definitions of ‘money’ and, therefore, do not independently trigger the licensing requirements of TOMA.” Specifically, the Department concluded that several types of transactions, including purely digital currency transactions that did not involve sovereign currency, do not qualify as money transmission.

In a recent press release, Department Secretary Bryan A. Schneider spoke about the need for careful examination of digital currency even though the Department currently views it primarily as a commodity rather than a currency: “As innovative payment technologies grow in popularity, it is vital that we provide a succinct regulatory framework that gives businesses operating in this space necessary clarity. We plan to study digital currencies carefully as the technology develops, however, at this point in time digital currencies like Bitcoin, given their low transaction volume and relatively niche use, are best viewed as a speculative investment or possibly even a new type of asset class, not as money.”

The first section of the guidance points out that no jurisdiction has yet to treat any virtual currencies as legal tender, and as such they “exist outside the recognition of established financial institutions.” The guidance then distinguishes between centralized and decentralized digital currency by the way they are created and issued. Centralized currencies are created and issued by a specific source, and rely on an individual or entity with full authority/control over the assets. In contrast, decentralized digital currencies, “are not created or issued by a particular person or entity, have no administrator, and have no central repository.” The guidance recognizes that centralized digital currency has intrinsic value because it is backed by sovereign currency whereas decentralized digital currency lacks intrinsic value since it does not “represent a claim on a commodity and is not convertible by law. Its value is only what a buyer is willing to pay for it.”

 The guidance then focuses on applying TOMA principles to digital currencies. According to the guidance, “whether or not an Illinois money transmitter license is required for an entity to engage in the transmission of decentralized digital currencies turns on the question of whether decentralized digital currency is considered ‘money’ as defined in TOMA.” Accordingly, Section 5 of TOMA defines money transmitter, transmitting money, and money as follows:

Money Transmitter:

[A] person who is located in or doing business in this State and who directly or through authorized sellers does any of the following in this State:

  1. Sells or issues payment instruments
  2. Engages in the business of receiving money for transmission or transmitting money.
  3. Engages in the business of exchanging, for compensation, money of the United States Government or a foreign government to or from money of another government.

Transmitting Money:

[T]ransmission of money by any means, including transmissions to or from locations within the United States or to and from locations outside of the United States by payment instrument, facsimile or electronic transfer, or otherwise, and includes bill payment services.


[A] medium of exchange that is authorized or adopted by a domestic or foreign government as a part of its currency and that is customarily used and accepted as a medium of exchange in the country of issuance.

The guidance concludes that “although decentralized digital currencies are a representation of value that can function as a medium of exchange, they are not considered ‘money’ for the purposes of TOMA as decentralized currencies have not been ‘authorized or adopted by a domestic or foreign government as a part of its currency.’ A person or entity engaged in the transmission of decentralized currencies, as they currently exist, would not be required to obtain a TOMA license. However, should transmission of decentralized digital currencies involve ‘money’ in a transaction, that transaction may be considered money transmission depending on how the transaction is organized.”

The last section of the guidance discusses regulatory treatment of digital currencies and includes a non-exhaustive list of activities that would qualify as money transmission, such as exchanges between digital and sovereign currencies through a third party exchange or automated machine. These types of activities require a money transmitter license. On the other hand, exchanges between digital and sovereign currencies between two parties, exchanges between two different digital currencies, and mining digital currency transactions are not money transmission since the Department has interpreted otherwise.

The Department’s proposed regulation will provide much-needed guidance for those transacting with digital currencies in the absence of a comprehensive federal policy addressing digital currency businesses. Those interested in submitting comments to the Department regarding this guidance may do so until January 18, 2017, after which the guidance will go into effect.