Hope for Hemp Banking: Federal Guidance Clarifies and Eases Reporting Requirements
By Sahar Ayinehsazian, Associate Attorney
Dec 12, 2019
On December 3, 2019, a group of federal financial regulators took an important step to enable hemp operators to access banking services by publishing hemp banking guidance.
Comprised of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of Currency and the Conference of State Bank Supervisors, the group released a statement clarifying the relevant requirements under the Bank Secrecy Act (BSA) for banks providing services to hemp-related businesses. This guidance follows the United States Department of Agriculture’s October 31, 2019 interim final rule issuance, which established the domestic hemp production regulatory program to facilitate the legal production of hemp set forth in the 2018 Farm Bill.
Signed into law on December 20, 2018, the 2018 Farm Bill removed hemp from the list of Schedule I controlled substances pursuant to the Controlled Substances Act of 1970. Nonetheless, financial institutions around the country have remained hesitant to offer banking services to hemp operators, as these institutions have lacked clarity on how to perform due diligence on hemp operators.
One piece of guidance that banks and credit unions really needed was clarification on whether they were required to file Suspicious Activity Reports (SARs) on their hemp-operator clients. This need was met with the group's statement released earlier this month.
Before the new guidance was released, financial institutions that service cannabis-related businesses were expected to adhere to enhanced SAR filing requirements, pursuant to FinCEN’s 2014 cannabis banking guidance. These requirements state that all financial institutions must file a SAR with FinCEN any time the institution observes suspicious activity by a client. These requirements are very time-consuming and costly.
The recent hemp banking guidance specifies that “[b]ecause hemp is no longer a Schedule I controlled substance under the Controlled Substances Act, [financial institutions] are not required to file a [SAR] on customers solely because they are engaged in the growth or cultivation of hemp, in accordance with applicable laws and regulations. For hemp-related customers, banks are expected to follow standard SAR Procedures and file a SAR if indicia of suspicious activity warrants.” Consequently, financial institutions serving hemp-operators will no longer have to comply with FinCEN’s marijuana-specific SAR filing requirements, thereby saving the institutions a great deal of time and effort.
Although the guidance arguably eases the SAR requirements applicable to hemp operators, it stipulates that banks serving the hemp industry “must have a [Bank Secrecy Act/Anti Money Laundering] compliance program commensurate with the level of complexity involved.” Additionally, “[w]hen deciding to serve hemp-related businesses, banks must comply with applicable regulatory requirements for customer identification, suspicious activity reporting, currency transaction reporting and risk-based customer due diligence, including the collection of beneficial ownership information for legal entity customers.”
While short, the December 3rd hemp banking guidance provides financial institutions with much-needed clarity on how to perform onboarding and ongoing due diligence on hemp operators. With this guidance, financial institutions are now able to create their own procedures for serving hemp operators, thereby removing yet another pain point for the hemp industry.
If you have questions regarding marijuana or hemp banking, don’t hesitate to contact our Banking & Financial Services Access practice group.