As the cannabis industry continues to grow, it is becoming increasingly important for financial institutions to prepare for federal approval of this high-risk product. With recent bank collapses, it is more important than ever that financial institutions understand all the regulatory and operational requirements before taking on such a risky endeavor with such “High” rewards. The fear of regulatory fines or findings due to the lack of proper transaction monitoring is real with fines in the tens of millions for processing “prohibited transactions” like cannabis. However, the uncertainty of protection is reduced with the recent reintroduction of the Safe Banking Act (SBA) in the United States Congress. If passed, it would provide legal protection for financial institutions that choose to work with cannabis businesses.
The SBA is written to provide safe harbor protection from criminal or civil liability to financial institutions that offer services related to legal cannabis businesses under certain conditions, including meeting strict anti-money laundering safeguards and promptly reporting suspicious activity to law enforcement agencies. Ankura can help financial institutions understand and prepare for these regulations to ensure they are ready to responsibly partner with cannabis businesses once legalization occurs at the federal level. If not, they will be left behind as other more prescient financial institutions seize opportunities first. This bill has been gaining momentum the past few years and could pass soon. Now is an ideal time for financial institutions to get ahead of potential regulations or restrictions imposed on them once legislation is approved.
As many states have already legalized medical, and in some cases recreational, marijuana it means there are even more cannabis businesses looking towards traditional banking options to make payments easier while also protecting against potential fraud or theft associated with cash-only transaction businesses. Smaller to mid-size financial institutions, including some credit unions, have already begun reaping the rewards via profit and growing relationships via the various tiers of marijuana related businesses from alliances with cannabis businesses. Financial institutions no longer need to fear entering business relationships with these companies but rather embrace them with appropriate knowledge and preparation, since financial institutions can offer a variety of benefits including increased security measures against money laundering activities, improved customer service experiences through digital payment processing systems, and greater profitability due to their large customer base.
As public acceptance grows regarding the use of recreational marijuana at state and national levels, financial institutions must take steps today to remain competitive tomorrow. There are numerous benefits to financial institutions beyond revenue generation of properly preparing to work with cannabis-based businesses. Doing so assists the larger community by providing these cash-based businesses with opportunities to secure their cash reducing the likelihood of robberies and laundering through cash. Not only does early preparedness put financial institutions one step ahead when actual legislation passes through Congress, it also helps protect their reputation by enhancing compliance throughout the implementation period.
How Can Ankura Help?
Ankura will apply deep risk management experience to help your financial institution prepare a product-based risk assessment to determine whether cannabis is the right product for you. If it is, Ankura will offer experienced professionals to assist with program setup and best practices. Ankura pairs technology expertise with extensive operational knowledge and strong relationships so our clients can rest assured knowing that we understand the complexities involved in such operations better than anyone else in the market today. Our team consists of highly qualified professionals, former BSA/AML/OFAC officers, analysts, and regulators who are well-versed with the legal requirements surrounding cannabis banking and operations as well as how best to effectively manage associated risks, so clients remain thoughtful, innovative and safe if they decide to establish a successful new business in the cannabis space.
© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
