Minnesota Banks to Offer Crypto Custody as Law Takes Effect Aug. 1
Minnesota banks and credit unions will be able to offer cryptocurrency custody services starting August 1, thanks to a bill signed into law by Governor Tim Walz. House File 3709 (HF3709) amends the state’s regulations, allowing regulated financial institutions to safeguard digital assets for customers in a nonfiduciary capacity.
The law, passed with overwhelming support in both the Minnesota House and Senate, is designed to ensure that residents have access to secure, regulated custody services without relying on unregulated or offshore providers. Representative Bernie Perryman, an early sponsor, emphasized that the measure helps local banks and credit unions "evolve alongside their customers."
Key Provisions and Market Impact
Under the statute, Minnesota-chartered financial institutions can use third-party providers or subcustodians for crypto custody, provided customer funds are segregated from the institution’s assets. This is a crucial safeguard to protect depositors in case of insolvency. Institutions must notify the state’s commerce commissioner 60 days before launching such services, ensuring a layer of regulatory oversight.
The law applies to Minnesota’s 240 insured commercial banks, holding a combined $128 billion in assets as of May 2025, and 82 credit unions under the Minnesota Credit Union Network. Notably, Minneapolis-based U.S. Bancorp, the seventh-largest U.S. bank by total assets, could play a pivotal role in shaping the adoption of crypto custody services in the state.
While the bill facilitates innovation for financial institutions, it comes amid broader scrutiny of the crypto space in Minnesota. Legislators are also considering a ban on cryptocurrency kiosks and ATMs following a rise in fraud cases, highlighting the state’s cautious approach to protecting consumers.
Industry Context
Minnesota’s move aligns with a growing trend among U.S. states to regulate and integrate crypto services into traditional banking. Earlier this month, Kraken’s parent company, Payward, applied for a national trust charter with the Office of the Comptroller of the Currency (OCC) to expand its digital asset custody services. Similarly, companies like Ripple Labs, Circle, and BitGo have secured OCC approval for custody operations in recent years.
By allowing regulated institutions to offer custody services, Minnesota positions itself to compete with states like New York and Wyoming, which have already implemented crypto-friendly regulations. For consumers, this could mean greater access to secure storage options and potentially lower reliance on offshore exchanges or third-party providers.
What’s Next?
The law’s August 1 effective date gives Minnesota banks and credit unions a limited runway to prepare their systems, cybersecurity measures, and compliance frameworks. Institutions looking to enter the market will likely need to partner with established custody providers or invest heavily in infrastructure to meet regulatory standards.
For traders and crypto enthusiasts, this development could reduce friction in managing digital assets, particularly for large holders who prefer institutional-grade storage. Whether this translates into increased adoption of cryptocurrencies in Minnesota remains to be seen, but it’s a clear step toward integrating digital assets into the broader financial system.