Increasing digital innovation is changing the way financial services are provided and delivered by Midwestern banks. Recently, Governor Walz of Minnesota signed Off Bill 3709 which provides a legal framework for banks and credit unions in Minnesota to merge their traditional banking products with digital currencies like cryptocurrency. As of Summer 2018, banks and credit unions in Minnesota will be able to provide legal custody of cryptocurrency for all their customers. This revolutionary piece of legislation has modernized the Minnesota financial services industry by providing several examples of how regionally based networks of banks are able to leverage their strengths to create a more robust and sustainable digital economy.
A New Chapter for Local Institutions
Starting on August 1, 2026, banks and credit unions that are chartered in Minnesota can begin to provide blockchain asset custody services. However, they must operate in a non-fiduciary manner, meaning they can safely store your digital assets and manage your keys but cannot manage your money as the owner. Currently, there are over 240 commercial banks and 82 membership-based credit unions in Minnesota, therefore, this legislation has the potential to change how millions of Minnesotans engage with digital currencies.
Securing the Digital Vault
The new law provides a very useful way of reducing the burden that traditional banks have with technology. By allowing banks to partner with outside (third-party) specialized service providers or subcustodians for the heavy lifting of crypto custody, banks can reduce their technological burden. However, the new law has requirements for consumer protection. All customer digital assets are to be separated legally and operationally from the bank’s corporate assets. If a bank goes into financial distress, the customer’s assets will be safe and protected from corporate creditors.
Keeping Financial Innovation Close to Home
The impetus for this legislation stems from the strong desire to retain local wealth in the local economy. Minnesota State Representative Bernie Perryman (one of the bill’s original sponsors) indicated that financial institutions located in Minnesota must adapt to changing conditions and remain competitive in relation to their clients. Residents interested in acquiring digital assets were unable to find alternatives domestically, leaving them to utilize unregulated custodial services from out of state or offshore. By bringing these current services into the long-established safety net of trusted neighborhood banks, lawmakers hope to create a much more secure environment for individuals to invest in.
Balancing Innovation with Consumer Protection
Minnesota is not only letting people use digital Asset custody solutions, but they are also closing the door on predatory practices at the same time. One week prior to Governor Walz signing custody legislation, he signed a second piece of legislation that placed a complete ban on all cryptocurrency kiosks and ATMs in the State of Minnesota. State Representative Erin Koegel sponsored this legislation as a result of the growing number of financial scams that target seniors and other vulnerable members of the community. Law enforcement agencies reported that scammers frequently used these public kiosks to funnel stolen life savings overseas, making the funds nearly impossible to trace or recover.
The Broader Push for Federal Approval
Minnesota’s progressive banking move mirrors a much larger trend happening at the federal level. Across the country, major digital asset companies are actively pursuing national banking approvals under the current administration. Payward, the parent company of the popular exchange Kraken, recently filed for a national trust company charter with the US Office of the Comptroller of the Currency (OCC). This comes in the wake of many recent examples of banks receiving conditional approvals from the OCC for various companies in the crypto space including Ripple Labs, Circle and Paxos indicating that traditional finance and cryptocurrency are merging as they become the new norm in America’s financial systems.
