Joint Statement Provides Financial Institutions with Update Relaxing BSA-Compliance Practices

December 9, 2019

Last week, four federal agencies ­–– the Board of Governors of the Federal Reserve System, Financial Crimes Enforcement Network (FinCEN), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency–– along with the Conference of State Bank Supervisors issued a joint statement providing financial institutions with much-needed guidance on lending to hemp-related businesses.

The crux of the statement is that institutions providing financial services to hemp-related businesses will no longer have to regularly file Suspicious Activity Reports (SARs) to maintain compliance under the Banking Secrecy Act (BSA). Prior to this statement, financial institutions were relying on the outdated 2016 FinCEN guidance that, after the 2018 Farm Bill, is only really applicable to institutions providing services to marijuana-related businesses.

Recognizing that the 2016 FinCEN guidance is antiquated, FinCEN plans to issue additional, updated guidance after performing a comprehensive analysis of the USDA Interim Final Rule issued on October 31, 2019.

What does this mean for financial institutions currently, or contemplating, lending to hemp-related businesses? Although regular SARs are not required, financial institutions still need to monitor the compliance practices and account activity of such businesses. Ensuring such businesses hold the correct licenses and are not engaging in illicit marijuana-related activities are necessary to maintain BSA compliance. If a financial institution detects any suspicious activity, it should follow the 2016 FinCEN guidance and file SARs until FinCEN issues its forthcoming guidance.

Additionally, given the volatility of the hemp industry to date, financial institutions must ensure they implement and follow a risk-management plan when providing financial services to hemp-related businesses. This includes, but is not limited to, reviewing licenses on an annual basis; overcollateralizing; monitoring account activity; and reviewing business and marketing practices to ensure federal regulatory compliance under the FDA’s FD&C Act.

The joint statement can be found at here.

The USDA Interim Final Rule issued on October 31, 2019 can be found here.

This information is general in nature and should not be construed as tax or legal advice.

Co-written by Jennifer Lurken and Rhett Schwichtenberg

Associated Attorneys