Illinois FinTechs may soon have a new opportunity to provide safekeeping of digital assets such as cryptocurrencies, in a move that would make the state only the second in the nation to offer this authority to applying companies.
A new charter for these “special purpose trust” companies got one step closer to passage through the state legislature Tuesday, with the Illinois House committee on Financial Institutions unanimously passing a bill that could put the bill on a fast track to become law this year.
The use of digital assets has continued its meteoric ascent for the past year – bitcoin prices topped $60,000 for the first time ever just last week – and even the most traditional financial institutions have been forced to take notice.
“We’ve crossed the line now,” said Goldman Sachs Global Head of Digital Assets Matthew McDermott in a recent interview with Financial News. “The focus will become broader and so there’ll just be different reasons for why you’d want to be involved with different cryptocurrencies, because of the underlying technology that’s coming.”
Digital asset companies have historically found it difficult to form relationships with traditional financial institutions, driven in part by caution around the extremely volatile assets but, more critically, by continued regulatory uncertainty. This law, in tandem with recent guidance from the OCC supporting federal banks in participation in blockchain and stablecoin usage, can only offer stability in this sector.
Other major banks, including Morgan Stanley, BNY Mellon, and JP Morgan have also taken notice, all of which only serves to build momentum for a legislative push to finally start to open the gates to the kinds of regulatory change needed to drive digital assets to full legitimacy.
That’s reflected in proponents who signed on as proponents for the bill, including the Illinois Bankers Association, the Community Bankers Association of Illinois, Burling Bank, and the Illinois Department of Financial and Professional Regulation.
“We are proponents of this bill because we want to be innovative… around this industry,” said Chasse Rehwinkel, acting state banking director at the IDFPR in an interview with Payments Dive. “It was something that was being asked for so we decided to do our due diligence, and then we supported it.”
If the bill is passed by the legislature this May, the IDFPR will also propose rules governing the new special purpose trusts, outlining the nature and scope, review process, and the specific ways in which fiduciary assets are collateralized, permitting these special trusts to offer all the same types of financial products as existing trusts as well as digital asset services.
“The idea is to make sure that this type of financial institution is held to the same scrutiny as our existing bank trusts,” Rehwinkel said.
If passed, Illinois will become just the second state in the country – after Wyoming – to pass such a special charter law. In Wyoming, late last year the move attracted cryptocurrency exchange Kraken, granting them a charter permitting them to effectively act as a primary banking relationship for bitcoin exchanges. The innovations could be even bigger in a place like Chicago, which has long been one of the top financial centers in the world.