Purpose

This bill would allow Minnesota banking institutions to offer custody and related services for virtual currency, under clear rules and safeguards. It sets standards for how banks can hold, safeguard, and manage customers’ virtual currency and related control mechanisms.

What the bill would allow

• Banking institutions may provide virtual currency custody services in either fiduciary (trust-like) or nonfiduciary roles, as long as they follow this section and existing law.
• Banks could act as safekeepers, agents, bailees, or trustees for virtual currency, for the purpose of safekeeping or administration, similar to how they handle other assets.
• Banks may use qualified third-party service providers or subcustodians to help deliver custody services, but the bank must oversee them and ensure compliance.

Key requirements for banks (safety, controls, and governance)

• Banks must run custody activities in a safe and sound manner, with written policies and procedures covering risk management, internal controls, cybersecurity, business continuity, and compliance.
• Banks must provide written notice to the state banking commissioner at least 60 days before starting virtual currency custody services, describing the nature of the services and the bank’s risk management framework.
• Banks must structure custody so that customer virtual currency and its control mechanisms are legally and operationally segregated from the bank’s own assets, and not treated as the bank’s property.
• Banks may engage third-party providers, but must maintain oversight and ensure ongoing compliance with these requirements.
• Virtual currency custody services are subject to regular examination by the state banking commissioner as part of standard supervision.
• The bill clarifies that it does not allow any activities that are prohibited by law or change how virtual currency is legally characterized under state or federal law.

Significant changes to existing law

• Establishes a formal framework for banks to offer virtual currency custody services in Minnesota, including risk management, asset segregation, and the use of subcustodians.
• Introduces explicit oversight, reporting, and examination requirements by the state banking commissioner for these custody activities.
• Allows banks to provide custody services in fiduciary or nonfiduciary capacities, expanding the ways banks can hold and manage customers’ virtual currency.

Construction and limitations

• The bill does not authorize any activities that are illegal or otherwise prohibited by law.
• It does not alter how virtual currency is legally characterized at the state or federal level.

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Relevant Terms virtual currency, virtual currency custody services, banking institution, fiduciary capacity, nonfiduciary capacity, safekeeping, agent, bailee, trustee, safekeeping or administration, risk management, internal controls, cybersecurity, business continuity, compliance, notice, commissioner, third-party service providers, subcustodians, segregation of assets, control mechanisms, controllable electronic records, examination, propulsion of state law.