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<p><img width="803" height="600" src="https://financefeeds.com/wp-content/uploads/2026/05/Square-Hits-1-Million-U.S.-Merchants-Using-Bitcoin-Payments-In-Nationwide-Expansion.jpg" alt="Square Hits 1 Million U.S. Merchants Using Bitcoin Payments In Nationwide Expansion" title="Minnesota Allows Banks and Credit Unions to Offer Crypto Custody 102"></p>
<h2 id="why-is-minnesota-opening-crypto-custody-to-banks">Why Is Minnesota Opening Crypto Custody to Banks?</h2> Minnesota has enacted legislation allowing banks and credit unions to offer cryptocurrency custody services, giving regulated financial institutions a clearer path into digital asset safekeeping while the state tightens rules around higher-risk crypto access points. Governor Tim Walz signed HF 3709 into law on Friday. The measure permits certain virtual-currency custody services to be offered and performed by eligible banking institutions and credit unions. The law is scheduled to take effect on Aug. 1, 2026. The bill marks a practical shift in how Minnesota is framing crypto activity. Rather than leaving custody primarily to crypto-native firms, offshore providers, or unregulated platforms, the state is allowing traditional financial institutions to hold <a href="https://financefeeds.com/u-s-regulators-clarify-crypto-custody-rules-for-banks/" rel="noopener noreferrer nofollow">digital assets for customers</a> under written risk and compliance controls. For banks and credit unions, the law creates a regulated route into a service line that has become more relevant as <a href="https://financefeeds.com/pnc-bank-to-offer-crypto-services-through-coinbase-partnership/" rel="noopener noreferrer nofollow">retail and institutional crypto</a> adoption grows. For customers, it offers a custody option inside financial institutions already subject to state oversight, consumer protection rules, internal control standards, and examination regimes. 
<h2 id="what-compliance-rules-will-banks-and-credit-unions-face">What Compliance Rules Will Banks and Credit Unions Face?</h2> HF 3709 does not give banks and credit unions a blank check to enter crypto custody. Institutions that offer the service must maintain written policies covering risk management, internal controls, security, and related compliance measures. They must also notify the Minnesota Commissioner of Commerce in writing at least 60 days before launching crypto custody services. That notice must include details of the <a href="https://financefeeds.com/kucoin-alloyx-pilot-rwa-token-collateral-to-boost-security-and-liquidity/" rel="noopener noreferrer nofollow">institution’s risk management framework</a>, giving regulators a chance to review how the service will be governed before customer assets are accepted. A key requirement is asset segregation. Banks and credit unions must ensure that client assets are kept separate from the institution’s own assets. That rule directly addresses one of the central risks exposed in several crypto failures: the mixing of customer property with company funds or operational assets. Rep. Bernie Perryman, one of the main authors of the bill, said in a March press release that HF 3709 is designed to ensure Minnesota-based financial institutions can “evolve alongside their customers and members,” rather than forcing residents to rely on unregulated out-of-state or offshore providers for custody services. 
<h3 id="investor-takeaway">Investor Takeaway</h3>
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 Minnesota is not treating crypto custody as a prohibited activity. It is moving the service into regulated banking channels, with advance notice, written risk controls, and customer asset segregation as the core safeguards.
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<h2 id="how-does-this-fit-into-state-level-crypto-regulation">How Does This Fit Into State-Level Crypto Regulation?</h2> Minnesota joins a growing group of states that have allowed certain banks to provide crypto custody services. New York, Wyoming, and Virginia already have similar rules in place, reflecting a broader state-level effort to define which crypto activities can be handled inside regulated financial institutions. The move is important because custody sits at the foundation of <a href="https://financefeeds.com/coinbase-and-major-u-s-banks-test-stablecoin-and-crypto-custody-pilots/" rel="noopener noreferrer nofollow">digital asset market structure</a>. Without secure custody, banks cannot easily support related services such as tokenized asset safekeeping, institutional crypto access, or customer-facing digital asset products. Clear custody permission can therefore become a first step toward broader bank participation in crypto markets. For credit unions, the law may also help retain customers who already hold crypto but prefer to manage assets through familiar financial providers. The Minnesota Credit Union Network said the legislation gives Minnesotans a safer way to manage crypto and strengthens protections against fraud, hacks, and loss through regulatory oversight. The institutional impact will depend on execution. Smaller banks and credit unions may still face high technology, insurance, compliance, and cybersecurity costs. Larger institutions or those using third-party custody infrastructure may be better placed to enter the market first. The law creates permission, but it does not remove the operational burden of holding private keys, managing blockchain transactions, or monitoring digital asset risks. 
<h2 id="why-is-minnesota-banning-crypto-atms-at-the-same-time">Why Is Minnesota Banning Crypto ATMs at the Same Time?</h2> The custody law comes as Minnesota is taking the opposite approach toward crypto ATMs and kiosks. Earlier this month, the state enacted SF 3868, which bans crypto ATMs and kiosks across Minnesota. From Aug. 1, no new crypto ATMs can be installed, and existing kiosks may no longer operate. Operators must remove all crypto kiosks by Dec. 31. Taken together, the 2 laws show that Minnesota is drawing a line between regulated custody and retail crypto access points that lawmakers associate with fraud, hacks, and loss. Banks and credit unions are being allowed to provide custody under oversight. Crypto ATMs, by contrast, are being removed from the state’s market. The policy split mirrors a wider regulatory pattern. Governments are becoming more willing to allow crypto activity when it is routed through supervised institutions, documented controls, and clear customer protection rules. They are less willing to tolerate services viewed as vulnerable to scams, money laundering, or poor consumer safeguards. Canada has also moved in that direction. The Canadian government said in its spring economic update that it plans to ban crypto ATMs, citing their role in <a href="https://financefeeds.com/thai-police-arrest-south-korean-in-50-million-crypto-to-gold-laundering-case/" rel="noopener noreferrer nofollow">fraud and money laundering</a>. Those developments have added pressure to crypto ATM operators, with Bitcoin Depot announcing on Monday that it had filed for Chapter 11 bankruptcy and would wind down its business. For Minnesota’s crypto market, the message is direct. Digital asset custody can move further into regulated finance, but informal or lightly supervised access channels are facing heavier restrictions. The state is not rejecting crypto outright. It is narrowing where crypto services can operate and who is allowed to provide them.

Minnesota Allows Banks and Credit Unions to Offer Crypto…

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