Minnesota Gives Banks Green Light for Crypto Custody
Governor Tim Walz has signed new legislation allowing state-chartered banks and credit unions to provide custody services for Bitcoin and other digital assets.
The bill, known as HF 3709, received overwhelming bipartisan support throughout the legislative process. The Minnesota House initially approved the measure by a 130-4 vote before the Senate later passed an amended version 51-16. The House then finalized the legislation with another strong vote of 119-6.
The new law officially takes effect on August 1, 2026.
Under the legislation, financial institutions will be allowed to safeguard, administer, and manage digital assets for customers in a fiduciary or custodial capacity. However, the law stops short of authorizing banks to actively trade, lend, or invest customer crypto holdings.
Strict Compliance Rules Will Apply
Minnesota’s framework includes several regulatory safeguards aimed at preventing misuse of customer assets.
Banks and credit unions that want to launch crypto custody services must first notify the Minnesota Department of Commerce at least 60 days before operations begin.
Institutions are also required to establish policies covering cybersecurity, internal controls, risk management, and business continuity planning. Most importantly, customer crypto assets cannot be mixed with the institution’s own holdings.
The law additionally permits banks to partner with qualified third-party custodians, although the financial institution itself remains fully responsible for regulatory compliance.
The Department of Commerce retains authority to shut down services it determines to be unsafe or unsound.
Local Banks Say Customer Demand Is Already There
Supporters of the bill argued the state needed to modernize financial services to match growing consumer demand for crypto storage solutions.
Representative Bernie Perryman, who sponsored the House version of the legislation, described the measure as necessary for keeping Minnesota’s local financial institutions competitive.
During legislative discussions, St. Cloud Financial Credit Union reportedly told lawmakers that roughly 20% of its members already own crypto assets but currently rely on unregulated or out-of-state platforms to store them.
The Minnesota Credit Union Network and the Department of Commerce both supported the bill, arguing that regulated local custody services could improve consumer protection while aligning the state with broader federal guidance surrounding digital asset custody.
Minnesota Simultaneously Bans Crypto Kiosks
While lawmakers expanded crypto custody rights for financial institutions, the state also moved aggressively against crypto ATMs.
Governor Walz separately signed SF 3868 earlier this month, a law that completely bans cryptocurrency kiosks across Minnesota starting August 1, 2026.
The decision follows growing concern over scams involving Bitcoin kiosks placed in gas stations, grocery stores, and laundromats.
According to reports presented to lawmakers, Minnesota previously had around 400 licensed crypto ATM locations statewide.
Law enforcement agencies described a sharp increase in fraud cases involving scammers convincing victims - particularly elderly residents - to convert cash into crypto through kiosks under false pretenses.
Fraud Losses Sparked the Crackdown
Officials presented extensive fraud statistics during debate over the kiosk ban.
Police in Faribault reportedly tracked more than $500,000 in kiosk-related fraud losses since 2022. Authorities in Apple Valley documented over $248,000 in losses across two years, while Minneapolis police investigated approximately $82,000 in Bitcoin ATM fraud during 2025 alone.
According to the Department of Commerce, the average reported loss per scam victim in Minnesota reached roughly $6,700.
Recovery rates were also extremely low. Officials stated that only about 48% of victims recovered any money at all, and even those who did typically recovered just 16% of their losses.
Minnesota now joins Indiana and Tennessee as one of the few U.S. states to impose a full ban on crypto ATMs.
Industry Pushback Emerges
Not everyone supported the kiosk crackdown.
Larry Lipka, general counsel for crypto ATM operator CoinFlip, argued that scammers exploit many different payment methods and that stronger regulation would have been more effective than an outright ban.
CoinFlip currently operates around 50 kiosks inside Minnesota.
Critics of the ban warn that removing regulated crypto kiosks could push users toward less transparent alternatives instead of eliminating fraud entirely.
