New York’s Department of Financial Services will not sanction state-chartered banks and credit unions

The guidance was issued in response to queries from financial institutions regarding provision of financial services to state-licensed medical cannabis-related businesses.

Bethan Rose Jenkins, Cannabis News Writer/Editorial

Cannabis industry banking issues are causing concern among New York’s financial officials.

On July 3, 2018, fresh guidance was issued by New York State’s Department of Financial Services (NYSDFS) in an attempt to prompt state-chartered banks and credit unions to supply cannabis companies with financial services access.

The DFS cannabis memo was well received by business owners and regulators, two types of people comprising an expanding group that is encouraging banks to collaborate with companies in the cannabis space.

Since cannabis remains illegal at the federal level, the vast majority of financial institutions are reluctant to provide cannabis businesses with access to financial services. In today’s economic climate, it is rare for any industry to operate solely with cash.

The DFS cannabis memo outlines that financial institutions can be relieved of possible sanctions; a major boost for the legal weed industry in and around the Big Apple.

DFS cannabis memo calls the industry’s banking problems a “big issue”

Banking industry officials are not satisfied that state-based solutions can efficiently resolve banking issues. Thanks to the new guidance contained in the 10-page memo issued by NYSDFS, regulators, and lawmakers in the city can relax a little.

Chief executive officers were alerted of the banking predicaments that currently plague the cannabis industry when the DFS cannabis memo was released.

Regulatory obstacles discussed in the cannabis memo include:

  • “Large amounts of cash distributed outside the regulated banking system is unacceptable and creates risks to the companies and their employees and business partners … New York must act.”
  • “Forcing medical marijuana and industrial hemp businesses to operate solely with cash creates a public safety issue, as cash-intensive businesses and their suppliers, employees and customers become targets for criminals.”

State-chartered banks and credit unions will not be sanctioned

Sanctions will not be forced upon businesses, so long as they adhere to laws, regulations, and guidelines provided by the 2013 Department of Justice memo from the former Deputy Attorney General James Cole.

In addition to this, state-chartered banks and credit unions must comply with the 2014 Financial Crimes Enforcement Network (FinCEN) guidance, as well as New York laws and regulations.

Before providing Registered Organizations (ROs) with banking services, certain requirements must initially be considered:

  • transaction monitoring in accordance with established principles and procedures;
  • customer due diligence in accordance with established principles and procedures;
  • compliance with New York Compassionate Care Act;
  • compliance with applicable regulations and requirement of New York State Department of Health (NYSDOH);
  • Cole Memo guidance and priorities (including, among other things, preventing diversion of marijuana to minors and to other states, and the flow of revenue to criminal enterprises);
  • FinCEN guidance clarifying Bank Secrecy Act expectations (including verifying the business is a licensed RO, reviewing the RO’s application for a license, obtaining information from the NYSDOH on the RO, understanding the ROS’s activities and customers, monitoring public information on the RO, monitoring for red flags based on assessment of revenue, movement of funds, location of ROs, among other indicia); and
  • Fling Suspicious Activity Reports (SARs), such as a Marijuana Limited SAR, Marijuana Priority SAR, or a SAR for Termination, depending on the RO’s compliance with NYS law and regulations and Cole Memo, and the bank’s need to maintain an effective anti-money laundering compliance program.

The DFS press release clarifies that the guidelines have been created to foster the growth of New York’s cannabis industry by prompting banks to collaborate with industry players. The guidance was issued in response to queries from financial institutions regarding the provision of financial services to state-licensed medical cannabis-related businesses.