Minnesota Takes Dual Approach to Crypto: Permits Bank Custody While Banning ATMs - Blockonomi

by · Blockonomi

Key Highlights

Table of Contents

Toggle

  • On May 16, Governor Tim Walz approved House File 3709, permitting Minnesota’s state-chartered banks and credit unions to provide cryptocurrency custody services effective August 1.
  • The legislation mandates complete segregation of client digital assets from institutional holdings.
  • Financial institutions must provide 60-day advance written notification to Minnesota’s Commerce Commissioner before launching crypto services.
  • Concurrently, Minnesota implemented a statewide prohibition on cryptocurrency ATMs and kiosks, also beginning August 1, due to fraud concerns.
  • Minnesota becomes the pioneering midwestern state establishing comprehensive regulatory guidelines for cryptocurrency custody across banks and credit unions.

Minnesota has emerged as the Midwest’s first state to enact comprehensive legislation permitting both banking institutions and credit unions to provide cryptocurrency custody solutions for clients. Governor Tim Walz signed House File 3709, with implementation scheduled for August 1.

Key Provisions of the Legislation

State-chartered banking institutions may provide cryptocurrency custody services in either fiduciary or nonfiduciary capacities. Credit unions face restrictions limiting them to nonfiduciary arrangements exclusively. Both entity types retain authority to engage third-party vendors or subcustodians for operational support.

A critical mandate exists: client digital assets must maintain complete segregation from institutional holdings. Under no circumstances can these funds be classified as institutional property.

Before launching cryptocurrency custody operations, institutions must submit advance written notification to Minnesota’s Commerce Commissioner no fewer than 60 days prior. This notification must detail the institution’s risk management protocols and cybersecurity infrastructure.

The statute characterizes crypto custody as the protection, control, or administration of digital assets including their cryptographic private keys.

State Representative Steve Elkins, a primary bill architect, explained that community financial institutions advocated for this capability to deliver comprehensive financial services to their clientele. He highlighted a practical challenge: individuals frequently lose cryptocurrency access due to forgotten credentials or account identifiers. Institutional custodianship mitigates this vulnerability.

Minnesota’s Financial Services Landscape

As of May 2025, Minnesota hosted 240 federally insured commercial banks managing approximately $128 billion in combined assets. Additionally, 82 credit unions functioned under the Minnesota Credit Union Network’s umbrella. U.S. Bancorp, ranked as America’s seventh-largest bank by total assets, maintains its headquarters in Minneapolis.

The St. Cloud Financial Credit Union praised the legislation for establishing transparent regulatory parameters for cryptocurrency custody within controlled environments emphasizing security, stability, digital defense, and member safeguarding.

Concurrent ATM Prohibition

Coinciding with the custody law’s implementation, Minnesota enacted a statewide crypto ATM prohibition, eliminating all cryptocurrency kiosks effective August 1.

State Representative Erin Koegel, who championed the House prohibition legislation, indicated these machines had become instruments exploited by fraudsters targeting vulnerable populations, especially elderly individuals on fixed retirement incomes.

Bitcoin Depot, among America’s largest bitcoin ATM operators, declared Chapter 11 bankruptcy protection during the same timeframe. The company’s equity valuation plummeted 71 percent during premarket trading sessions following the announcement.

National Developments in Parallel

At the federal tier, cryptocurrency enterprises have similarly pursued banking authorizations. Kraken’s corporate parent, Payward, submitted an application to the Office of the Comptroller of the Currency requesting national trust company charter status. The OCC has previously granted or conditionally authorized comparable applications from Ripple Labs, BitGo, Circle, Fidelity Digital Assets, and Paxos.

The OCC currently evaluates a charter petition from World Liberty Financial, established by President Donald Trump alongside his sons.

Minnesota’s regulatory framework positions it within an emerging cohort of states developing formal cryptocurrency custody structures, alongside Wyoming, Virginia, and New York.

Advertise Here