Minnesota Bans Crypto ATMs and Legalizes Bank Crypto Custody in the Same Week

TLDR

• Minnesota Governor Tim Walz signed House File 3709 into law on May 16, allowing state banks and credit unions to offer crypto custody services starting August 1.
• The law requires customer digital assets to be legally separated from the institution’s own assets.
• Banks must submit a 60-day advance written notice to the Minnesota Commissioner of Commerce before offering services.
• At the same time, Minnesota banned crypto ATMs and kiosks statewide, also effective August 1, citing their use in scams.
• Minnesota is the first midwestern state to create a unified legislative framework for crypto custody covering both banks and credit unions.

Minnesota has become the first state in the Midwest to pass a unified law letting both banks and credit unions hold crypto on behalf of customers. Governor Tim Walz signed House File 3709 into law, with the new rules taking effect August 1.

What the New Law Actually Allows

State-chartered banks can offer crypto custody in either a fiduciary or nonfiduciary capacity. Credit unions are limited to a nonfiduciary role. Both are allowed to use third-party service providers or subcustodians to help carry out these services.

There is one firm requirement: customer digital assets must be kept completely separate from the institution’s own assets. The funds cannot be treated as bank property at any point.

Before any institution can start offering these services, it must file a written notice with the Minnesota Commissioner of Commerce at least 60 days in advance. That notice must outline the institution’s risk management and cybersecurity plans.

The law defines crypto custody as the safekeeping, controlling, or managing of digital assets or their cryptographic private keys.

State Representative Steve Elkins, one of the bill’s authors, said community banks and credit unions pushed for this ability so they could offer a full range of financial services to customers. He also pointed to a practical concern: people lose access to their crypto when they forget their passwords or account IDs. A bank or credit union acting as custodian would reduce that risk.

How Big Is Minnesota’s Banking Sector

As of May 2025, Minnesota had 240 commercial insured banks holding around $128 billion in assets. There were also 82 credit unions operating under the Minnesota Credit Union Network. U.S. Bancorp, the country’s seventh-largest bank by total assets, is headquartered in Minneapolis.

The St. Cloud Financial Credit Union said the law creates a clear regulatory framework for crypto custody within regulated environments focused on safety, soundness, cybersecurity, and member protection.

The ATM Ban

On the same day the custody law took effect, Minnesota also banned crypto ATMs and kiosks statewide, with the ban also starting August 1.

State Representative Erin Koegel, who authored the House version of the ban, said the machines had become a tool used by scammers to target vulnerable people, particularly seniors on fixed incomes.

Bitcoin Depot, one of the largest bitcoin ATM operators in the U.S., filed for Chapter 11 bankruptcy the same week. The company’s stock dropped 71 percent in premarket trading following the filing.

Federal Moves Running Parallel

At the federal level, crypto firms have also been pushing for banking approvals. Kraken’s parent company, Payward, filed with the Office of the Comptroller of the Currency for a national trust company charter. The OCC had previously approved or conditionally approved similar applications from Ripple Labs, BitGo, Circle, Fidelity Digital Assets, and Paxos.

The OCC is also reviewing a charter application from World Liberty Financial, co-founded by President Donald Trump and his sons.

Minnesota’s law puts it among an early wave of states creating formal frameworks for crypto custody, joining Wyoming, Virginia, and New York.

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