Introduction
Starting August 1, 2026, Minnesota will implement legislation permitting banks and credit unions to offer custody services for cryptocurrencies, following the recent signature of HF 3709 by Governor Tim Walz. This new law enables state-chartered financial institutions to manage, control, and safeguard digital currencies and the associated private keys for their clients.
Custody Services Framework
With this regulatory framework, banks can operate in either a fiduciary or non-fiduciary capacity, while credit unions are permitted to serve their members within designated state and federal parameters.
For institutions looking to provide custody services, the law stipulates rigorous standards to ensure operational safety. These include maintaining comprehensive written policies focusing on aspects like:
- Risk management
- Internal controls
- Cybersecurity measures
- Adherence to regulatory compliance
Moreover, financial institutions are required to notify the Minnesota Commissioner of Commerce at least two months in advance of launching any custody service, detailing their proposed offerings and associated risk management strategies.
Customer Asset Protection
The legislation mandates that customers’ crypto assets remain distinct from the financial institution’s own resources, allowing for the use of qualified third-party service providers or subcustodians, although the primary institution retains oversight responsibility.
Rep. Bernie Perryman, a sponsor of the bill, emphasized that HF 3709 empowers Minnesota financial entities to adapt to the evolving needs of their clients, thereby reducing the trend of customers resorting to offshore or out-of-state solutions.
This approach aligns with the state’s intention to enhance consumer protection within the crypto sector.
Prohibition on Crypto ATMs
In a contrasting regulatory move, the state has also enacted a prohibition on crypto ATMs. Signed into law on May 5, SF 3868 will prevent the installation and operation of virtual currency kiosks, effective on the same day as the custody law, August 1, 2026. Existing operators must cease operations and return customer funds before the end of that year, allowing withdrawals in either U.S. dollars or cryptocurrency transferred to a designated wallet.
Industry Reactions and Broader Context
The Minnesota Credit Union Network has expressed that the new custody law provides residents with a regulated avenue to manage their cryptocurrency, highlighting the state’s dual approach: enhancing security for digital asset management while curtailing potential fraud associated with crypto ATMs.
This legislative shift in Minnesota comes amid a broader move in the U.S. regulatory landscape defining clearer guidelines for banks engaging in digital asset services, as shown by the Office of the Comptroller of the Currency (OCC) permitting federally regulated banks to conduct crypto trading and custody on behalf of their clients. Similar pressures to regulate or limit crypto ATMs have been evident in Canada, while Bitcoin Depot recently filed for Chapter 11 bankruptcy in response to declining revenues and increasing scrutiny.
