US Banks Move Further Into Crypto Custody
The US state of Minnesota recently passed legislation allowing state-chartered banks and credit unions to provide cryptocurrency custody services as traditional financial institutions continue expanding into digital assets. The law is expected to take effect in August 2026 and also includes restrictions on cryptocurrency ATMs and self-service kiosks across the state.
As digital assets become increasingly integrated into mainstream finance, more banks are exploring opportunities within the crypto custody sector. While custody services were previously dominated by crypto-native companies, traditional financial institutions are now building broader digital asset infrastructure to meet growing institutional demand.
At the same time, the legislation makes clear that institutions offering crypto custody must comply with strict federal regulatory standards, while digital assets held in custody will not receive federal deposit insurance protection. This creates additional compliance and operational responsibilities for financial institutions entering the sector.
Why Institutional Custody Raises AML and KYT Expectations
Institutional crypto custody typically involves larger transaction volumes, more complex payment structures, and increased cross-border activity compared with retail crypto services. As a result, AML and KYT requirements are becoming significantly more important for banks and regulated financial entities.
Regulators continue to focus on the potential use of digital assets for money laundering, sanctions evasion, and illicit fund transfers. The rapid growth of stablecoins and cross-chain transactions has also increased pressure on institutions to strengthen blockchain monitoring capabilities beyond traditional financial risk systems.
Banks and custody providers are increasingly expected to implement real-time transaction monitoring, wallet screening, sanctions checks, and suspicious activity detection as part of their compliance programs.
KYT Is Becoming Essential for Institutional Crypto Services
Modern KYT systems can do far more than identify risky wallet addresses. Advanced blockchain monitoring tools are designed to track transaction flows, analyze behavioral patterns, and detect abnormal activity across multiple blockchain networks.
For traditional financial institutions, these capabilities are especially important because banks typically operate under stricter audit, reporting, and regulatory oversight requirements. As institutional participation in digital assets continues to grow, compliance infrastructure is becoming a critical competitive factor within the crypto custody market.
The Minnesota legislation demonstrates that the US financial system is continuing to embrace digital assets while simultaneously raising expectations around AML and KYT compliance standards.