CUNA is now America's Credit Unions.
A stronger voice to advance the credit union industry.
A: Most financial institutions that get into this business understand the Bank Secrecy Act (BSA) and anti-money laundering (AML) risks. They can get into trouble when their appetite for this business is greater than their capacity to manage the compliance risk, and it becomes overweighted as a source of earnings or funding for the institution.
If you can’t keep up with the BSA/AML requirements and you’ve become overly dependent on it for earnings, you’ve backed yourself into a corner. You can’t get out of the business because it would be detrimental to your earnings.
Most of our clients have a limit in their policy—a percentage of assets or total deposits they’ll take on at any one time. Examiners like that. It communicates how fast or slow they intend to go as they enter this space.
Another potential issue credit unions face is not aligning policies and procedures with actual practices. Nothing makes an examiner crankier than when you say you’ll do something and then you don’t do it.
The FinCEN guidance gives examiners discretion to understand your program and to ask how you’re conducting certain activities.
That’s why you’ll want a good policy and procedures that clearly outline how you are mitigating this risk.
A: Generally, yes if you explain why and how you’re getting into this business, the vendors you’ve selected, and how you’ve evaluated the risk.
Don’t surprise your examiner with the fact that you’ve gone into cannabis banking after the fact. Engaging them early on will serve you well during an examination.
A: The most successful credit unions have a consolidated team. They’re not opening cannabis accounts in every branch, but rather they’re creating specialists or a team of people who know the business well, understand the compliance requirements, and work directly with these businesses.
This level of expertise adds value through the entire process of onboarding and ongoing compliance management, and really lends itself to great compliance results and a great member experience.
There’s also a growing expectation that you have a purpose-built technology platform in place to manage the risks associated with these businesses, have repeatable processes and good reporting, and have strong management oversight for this area of risk.
Look at technology to help you be efficient and compliant in this space.
Financial institutions that have gone down this path have paved the road by creating a set of tasks that need to be done to achieve compliant results.
Because that road has been paved, there’s more acceptance from regulators and an understanding of what compliance looks like. The cannabis industry also understands better than ever the requirements to obtain a banking relationship.
You don’t have to start from scratch. A playbook exists for cannabis banking and you can lean into a community of pioneering cannabis bankers as you build your program.
This article appeared in the Fall 2022 issue of Credit Union Magazine. Subscribe here.