Minnesota Enacts Law Permitting Bank and Credit Union Crypto Custody Starting August 1

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Minnesota Governor Tim Walz signed legislation last week authorizing state-chartered banks and credit unions to offer regulated cryptocurrency custody services, with the law taking effect August 1. The state becomes the first in the Midwest to enact a unified legislative framework covering both types of financial institutions, according to State Representative Steve Elkins, one of three authors of the bill. On the same date, a separate Walz-signed law will ban all crypto ATMs and kiosks statewide.

New Law Authorizes Custody Services, Sets Notice and Asset Separation Rules 

Minnesota is not the first U.S. state to permit crypto custody as Wyoming, Virginia, and New York have previously established pathways. However, it is the first in the Midwest to enact a unified framework covering both banks and credit unions, according to Representative Elkins. 

Under the terms of HF 3709, state-chartered banks are authorized to provide virtual asset custody services in either a fiduciary or nonfiduciary capacity, while credit unions may operate in a custodial nonfiduciary capacity. 

The legislation explicitly defines custody services as the safekeeping, controlling, or managing of digital assets or their cryptographic private keys. All customer digital asset holdings must be separated from a financial institution’s own assets and cannot be treated as bank property.

60-Day Notice Required; Institutions Must Segregate Customer Assets

Before offering these services, institutions must submit a comprehensive written notice to the Minnesota Commissioner of Commerce at least 60 days in advance, detailing their internal risk management and cybersecurity frameworks.

Elkins, who represents the DFL party, said the legislation responded directly to demand from within the financial sector, stating in an interview: 

“The community banks and credit unions wanted to be able to offer this service for their customers and members as part of a comprehensive array of financial services. Personally, I know people who have essentially lost their cryptocurrency accounts because they misplaced their account ID or password. That wouldn’t happen if their bank or credit union was acting as a custodian for their account information.” 

Minnesota Credit Unions Back New Custody Rules as Regulatory Step Forward 

The Minnesota Credit Union Network said the law allows the state’s financial institutions to offer a “safer way to manage crypto, strengthening protections against fraud, hacks, and loss under regulatory oversight.”

The St. Cloud Financial Credit Union separately stated in a LinkedIn post that the law creates a clear regulatory framework for Minnesota credit unions to provide crypto custody services within regulated environments focused on safety, soundness, cybersecurity, compliance, and member protection. 

“This legislation represents an important step toward giving consumers safer, more trusted options within the regulated financial system while helping credit unions remain relevant in a rapidly changing financial landscape,” the credit union said.

Separate Bill Bans All Crypto ATMs Statewide on the Same Effective Date

Walz also signed a bipartisan bill, SF 3868, implementing a statewide ban on crypto ATMs and kiosks, also effective August 1. Representative Erin Koegel, who authored the House version of the ban, said the machines had become a “tool for scammers to target some of our most vulnerable neighbors, especially seniors living on fixed incomes.” 

Both laws take effect August 1. Minnesota will expand regulated institutional access to crypto while eliminating a retail channel that lawmakers said had been used to defraud consumers. One of the largest bitcoin ATM providers in the United States, Bitcoin Depot, filed for bankruptcy on Monday.