Key Highlights
- On May 16, Governor Tim Walz approved House File 3709, granting Minnesota banks and credit unions permission to provide cryptocurrency custody services beginning August 1.
- Financial institutions must legally segregate customer digital assets from their own holdings under the new regulations.
- A mandatory 60-day advance written notification to the Minnesota Commissioner of Commerce is required before launching custody services.
- Simultaneously, the state implemented a comprehensive ban on cryptocurrency ATMs and kiosks effective the same date, referencing fraud concerns.
- The legislation establishes Minnesota as the initial midwestern state with comprehensive regulatory guidelines for digital asset custody applicable to banks and credit unions alike.
Minnesota has established itself as a pioneer in the Midwest by enacting comprehensive legislation permitting both banking institutions and credit unions to provide cryptocurrency custody services for their clientele. The bill, House File 3709, received Governor Tim Walz’s signature and becomes operational on August 1.
Key Provisions of the Custody Legislation
Financial institutions with state charters may provide digital asset custody services operating in either fiduciary or nonfiduciary capacities. Credit unions, however, face restrictions limiting them to nonfiduciary arrangements only. Both institution types retain the option to engage third-party vendors or subcustodians for operational support.
A critical mandate stands out: customer cryptocurrency holdings must remain entirely distinct from the financial institution’s proprietary assets. Under no circumstances can these funds be classified as institutional property.
Prior to launching cryptocurrency custody operations, every institution must submit written notification to the Minnesota Commissioner of Commerce with a minimum 60-day lead time. This notification must detail comprehensive risk management protocols and cybersecurity strategies.
The legislation characterizes crypto custody as encompassing the safeguarding, oversight, or administration of digital assets and their associated cryptographic private keys.
State Representative Steve Elkins, a principal architect of the bill, noted that community financial institutions advocated for this capability to deliver comprehensive financial solutions to their customers. He emphasized a pragmatic consideration: individuals frequently lose cryptocurrency access due to forgotten credentials or account identifiers. Custody services from banks or credit unions would mitigate this vulnerability.
Minnesota’s Financial Institution Landscape
Current data from May 2025 indicates Minnesota operates 240 federally insured commercial banks managing approximately $128 billion in total assets. Additionally, 82 credit unions function under the Minnesota Credit Union Network umbrella. U.S. Bancorp, ranked as the nation’s seventh-largest bank measured by total assets, maintains its corporate headquarters in Minneapolis.
St. Cloud Financial Credit Union praised the legislation for establishing transparent regulatory parameters for cryptocurrency custody within supervised financial environments emphasizing security, institutional stability, cybersecurity measures, and member safeguards.
Cryptocurrency ATM Prohibition
Coinciding with the custody legislation’s implementation date, Minnesota enacted a statewide prohibition on crypto ATMs and kiosks, likewise commencing August 1.
State Representative Erin Koegel, who authored the House prohibition measure, indicated these machines had evolved into instruments exploited by fraudsters targeting susceptible populations, especially elderly individuals living on fixed retirement income.
Bitcoin Depot, among America’s premier bitcoin ATM operators, declared Chapter 11 bankruptcy proceedings during the identical week. The corporation’s shares plummeted 71 percent during premarket trading sessions following the bankruptcy announcement.
Parallel Federal Regulatory Developments
At the national level, cryptocurrency enterprises have similarly pursued banking authorizations. Kraken’s parent corporation, Payward, submitted an application to the Office of the Comptroller of the Currency seeking a national trust company charter. The OCC has previously granted full or conditional approval to comparable applications from Ripple Labs, BitGo, Circle, Fidelity Digital Assets, and Paxos.
The OCC currently evaluates a charter application from World Liberty Financial, co-established by President Donald Trump alongside his sons.
Minnesota’s regulatory framework positions the state among pioneering jurisdictions establishing formal structures for cryptocurrency custody, joining Wyoming, Virginia, and New York in this emerging regulatory landscape.
