Minnesota Governor Tim Walz signed House File 3709 into law on May 18, 2026, authorizing state-chartered banks and credit unions to offer digital asset custody services in a nonfiduciary capacity beginning August 1, 2026. The legislation permits 240 commercial banks and 82 credit unions operating in the state to custody virtual assets through third-party service providers, provided funds remain legally and operationally segregated from institutional assets. The move positions Minnesota as a custody-friendly jurisdiction and gives regional players like Minneapolis-based U.S. Bancorp, the seventh-largest US bank by assets, a clear pathway to enter the digital assets market.
State-Level Custody Framework Closes Regulatory Gap
House sponsor Bernie Perryman framed the legislation as a response to customer demand and competitive disadvantage. “Minnesota-based financial institutions are allowed to evolve alongside their customers and members rather than forcing Minnesotans to rely on unregulated, out-of-state or offshore providers for services,” Perryman said. The law addresses a structural gap: while the OCC has approved custody charters for firms like Ripple Labs, BitGo, Circle, Fidelity Digital Assets, and Paxos, state-chartered institutions lacked explicit authorization. HF 3709 grants that authority directly, contingent on third-party service providers maintaining segregated custody arrangements and meeting operational standards set by state regulators.
Federal Regulators Already Signaling Openness
The OCC approved or conditionally approved custody charters for five major crypto firms in December, signaling institutional appetite at the federal level. In early May 2026, Payward (Kraken’s parent company) filed for an OCC national trust company charter, adding to a pipeline of traditional and crypto-native operators seeking formal custody licenses. Minnesota’s state-level authorization complements this federal momentum but operates independently. The state’s 240 commercial banks hold $128 billion in combined assets, representing substantial capital ready to deploy into custody infrastructure if market demand justifies the operational investment.
Custody Services Face Parallel Consumer Protection Push
While Minnesota expanded institutional custody access, the state also advanced a separate bill banning digital asset kiosks and ATMs following resident losses to scam schemes. The dual approach reflects legislative intent: formalize custody for regulated institutions while cracking down on unvetted retail channels. The August 1, 2026 effective date gives banks and credit unions a 2.5-month window to build infrastructure and draft custody policies. Whether established institutions like U.S. Bancorp will launch services immediately remains unclear, but the law removes the primary regulatory barrier to entry for state-chartered players.
