Is the Bank Open? Federal Agencies Clarify Regulatory Requirements for Banking HempOn December 3, several federal agencies issued guidance (Guidance) that, by its terms, “provide[s] clarity” regarding “the regulatory requirements under the Bank Secrecy Act (BSA) for banks providing services to hemp-related businesses.” Hemp proponents hope this additional clarity will encourage hesitant financial institutions to begin serving the hemp industry.

The key takeaway from the Guidance – which was issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network (FinCEN), and the Office of the Comptroller of the Currency – is that banks are not required to file with FinCEN a “Suspicious Activity Report” (SAR) regarding a customer “solely because [the customer is] engaged in the growth or cultivation of hemp in accordance with applicable laws[.]” This distinguishes banking hemp (i.e., cannabis containing less than 0.3% THC) from banking marijuana (i.e., cannabis containing more than 0.3% THC) – a bank must file a marijuana-specific SAR for each marijuana-related customer under FinCEN’s 2014 guidance. This onerous regulatory requirement (which we analyzed here) has dissuaded many financial institutions from serving marijuana-related businesses.

In the Guidance’s statement that banks are not required to file a SAR “solely because [the customer is] engaged” in a hemp-related business, “solely” is the operative word. The Guidance emphasizes that banks should follow their “standard SAR procedures” to determine whether there is sufficient “indicia of suspicious activity” surrounding a hemp customer to warrant a SAR. Such “standard SAR procedures” are governed by the BSA and its implementing regulations, which require banks to conduct “risk-based customer due diligence” to inform their SAR-filing decisions. Despite hemp’s legalization under the 2018 Farm Bill, hemp businesses will remain higher-risk customers for financial institutions given the complex regulatory requirements for growing hemp and the fine line between federally-legal hemp and federally-illegal marijuana. Consequently, banks that serve the hemp industry must ensure their BSA/anti-money laundering compliance programs include robust procedures for conducting enhanced due diligence on hemp customers to determine whether a SAR is warranted. While crafting these hemp-specific procedures could be costly, the reward to banks willing to engage the underserved hemp industry could be well worth the cost.

The Guidance states that FinCEN will issue more comprehensive guidance regarding hemp banking after it has further evaluated the U.S. Department of Agriculture’s interim final rule, which established the regulatory framework for hemp production. Once FinCEN’s guidance is published, we will analyze it in detail.

Print:
EmailTweetLikeLinkedIn
Photo of J. Hunter Robinson J. Hunter Robinson

Hunter Robinson represents clients in commercial litigation and compliance-related matters across the country. His litigation practice focuses on representing financial institutions in lender-liability, title, and business disputes, including class actions. Hunter represents mortgage servicers and lenders in suits arising from repurchase demands, and…

Hunter Robinson represents clients in commercial litigation and compliance-related matters across the country. His litigation practice focuses on representing financial institutions in lender-liability, title, and business disputes, including class actions. Hunter represents mortgage servicers and lenders in suits arising from repurchase demands, and defends those entities in litigation involving alleged violations of the Truth in Lending Act (TILA), Fair Debt Collection Practices Act (FDCPA), Real Estate Settlement Procedures Act (RESPA), and the Fair Credit Reporting Act (FCRA), and common-law claims for breach of contract, breach of fiduciary duty, and fraud.

Photo of James W. Wright Jr. James W. Wright Jr.

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved…

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved this status.

Jay’s practice focuses on financial services litigation and regulation, and he is actively involved in lawsuits and disputes across the country representing companies involved in a wide array of state and federal law claims. His representation includes general defense of various claims against financial institutions, mortgage companies, and other commercial entities. Many of these claims involve allegations of wrongful foreclosure proceedings or violations of the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and Federal Housing Administration (FHA) regulations, as well as various deceptive trade practices claims under state law.

Photo of Whitt Steineker Whitt Steineker

Whitt Steineker has devoted his career to representing companies and people that make things and provide services. He provides clients of all types with litigation counsel, transactional advice, and practical strategies for growth. Whitt has represented a variety of clients of all sizes—from…

Whitt Steineker has devoted his career to representing companies and people that make things and provide services. He provides clients of all types with litigation counsel, transactional advice, and practical strategies for growth. Whitt has represented a variety of clients of all sizes—from multinational corporations to local businesses—in a wide range of transactional and litigation matters in state and federal courts around the country.