Minnesotan banks and credit unions set to provide crypto custody August 1

Minnesota is set to become the next state to allow locally chartered entities to offer crypto custody services, after Governor Tim Walz (DFL) signed a virtual currency law last week.

While Minnesota is not the first U.S state to permit crypto custody, as pioneers like Wyoming, Virginia and New York have previously established pathways, it is among the early wave nationally. The state also stands out as the first in the midwestern United States to enact a unified, explicitly legislative framework covering both state-charter banks and credit unions.

State Representative Steve Elkins (DFL) on Monday hailed the state’s new signed virtual currency custody law which comes into effect on August 1 as a major milestone, marking a significant shift in how digital assets are managed.

“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,” Elkins, one of the three authors of bill HF 3709, told CoinDesk.

“Personally, I know people who have essentially lost their crypto currency accounts because they misplaced their account ID or password,” Elkins said. “That wouldn’t happen if their bank or credit union was acting as a custodian for their account information,” he added.

Under the explicit terms of the crypto custody law signed by Governor Walz, state-chartered banks are authorized to provide virtual asset custody services in a fiduciary or nonfiduciary capacity, while credit unions may operate in a custodial nonfiduciary capacity.

The St. Cloud Financial Credit Union recently stated in a post on LinkedIn 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,” it said..

The law also explicitly defines custody services as the safekeeping, controlling or managing of digital assets or their cryptographic private keys. Also key is that all customer digital asset holdings must be separated from the financial institutions’ own assets and cannot be treated as bank property.

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