Purpose

This bill would allow banking institutions in Minnesota to offer virtual currency custody services. It sets requirements to ensure these services are safe, regulated, and properly overseen by state authorities, while clarifying how such custody would fit within existing banking and custodial laws.

Key Definitions

• Virtual currency: digital currency as defined in state law.
• Virtual currency custody services: safekeeping, controlling, or managing virtual currency or the cryptographic private keys used to access it on behalf of another person.
• Control: the ability to access or use the virtual currency or its access keys.

What the bill authorizes

• Banking institutions may provide virtual currency custody services in fiduciary or nonfiduciary roles, including as agent, bailee, or trustee for safekeeping or administration of virtual currency, to the same extent they may hold or safeguard other assets.
• The authority to provide these services can be exercised in a fiduciary capacity (and may involve subcustodians or third-party providers) with the bank retaining oversight and ensuring compliance.

Safety, risk, and compliance requirements

• Banks must run virtual currency custody services in a safe and sound way.
• Banks must have written policies and procedures covering risk management, internal controls, cybersecurity, business continuity, and compliance.
• Banks must give written notice to the state banking commissioner at least 60 days before starting virtual currency custody services, describing the services and the risk management framework.
• The commissioner may limit or condition the bank’s authority if the activity is unsafe or unsound.

Asset handling and segregation

• Customer virtual currency and the related control mechanisms must be segregated from the bank’s own assets and must not be treated as the bank’s property.
• This segregation is aligned with how assets are handled in other custodial or fiduciary roles and relates to the concept of control of controllable electronic records.

Third-party involvement

• Banks may engage qualified third-party service providers or subcustodians to help provide custody services.
• The bank must retain oversight and ensure the third parties comply with the law and this section.

Supervision and examination

• Virtual currency custody services are subject to examination by the state banking commissioner as part of normal supervision processes.

Construction and scope

• The bill does not authorize activities that are prohibited by law, nor does it change how virtual currency is legally characterized under state or federal law.

Significance and potential impact

• Creates a clear legal pathway for banks to offer custody of virtual currency, which could increase safety and consumer protection through established banking controls.
• Introduces formal risk management, cybersecurity, and governance expectations for these services.
• Establishes regulatory oversight and a framework for oversight of third-party providers and asset segregation.
• Maintains alignment with existing financial and custodial laws, avoiding broad changes to the legal status of virtual currency.

Potential limitations

• Requires a 60-day advance notice to the commissioner, which could delay new service launches.
• The commissioner can limit or condition authority if risks are not properly managed.
• Does not authorize any prohibited activities or alter the fundamental legal characterization of virtual currency.

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Relevant Terms virtual currency custody services banking institution fiduciary capacity custodial capacity safekeeping control or control mechanisms cryptographic private keys subcustodians third-party service providers risk management internal controls cybersecurity business continuity compliance written notice commissioner safe and sound segregation of assets agent bailee trustee safekeeping of virtual currency electronic records (control of controllable electronic records) state and federal law examination and supervision