Page 18 - Michigan Credit Union League: 2018 Contact Q3
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REGULATORY CORNER
TECHNOLOGY SOLUTIONS FOR
CANNABIS BANKING
By Sarah Stevenson
A growing number of states have legalized various forms Credit unions should also be cautious of payment ven-
of cannabis usage under state law. At the time this dors. Prior to beginning any vendor relationship, the
article was written, 30 states have legalized medicinal credit union should conduct thorough due diligence,
cannabis, including Washington, D.C. Nine states and as with any third-party relationship. Because cannabis
Washington, D.C., have legalized recreational cannabis payment vendors are unique, some additional questions
usage, and another 16 states have legalized cannabidiol should be asked.
(CBD) usage. Michigan currently has state-level laws
providing legalized usage of cannabis for medicinal While not an exhaustive list, below are some examples
purposes, with a proposal on the ballot this November of questions to ask during the vetting process:
to legalize recreational cannabis use.
• Do funds, at any point in a transaction, leave
As Michigan, like many other states, moves toward the U.S. banking system?
expanding cannabis beyond medical use to recre-
ational use, the need for financial institutions willing • What is the funding timeline from purchase to
and able to provide banking services to the industry deposit to the merchant’s bank account? Longer
becomes an even greater necessity. Like any new than two days likely involves overseas and inter-
program, resources are necessary to be successful, mediate accounts.
particularly when entering as complex a program as
cannabis banking. • Is the payment service required to be licensed as
a money transmitter and/or money-services busi-
Should your credit union consider entering the cannabis ness? If so, is it licensed everywhere it operates?
banking industry, implementing and utilizing appropriate
technological resources will be an essential component. • Does the payment processor adhere
First, the credit union must ensure the team assigned to to FinCEN guidance?
oversee the cannabis program has adequate resources.
One such resource, and ultimately the most important, • Does the payment provider hold state-issued
is Bank Secrecy Act/anti-money laundering (BSA/AML) licenses for each cannabis business it serves
software that the team can program and adjust accord- and does it maintain current licenses?
ingly based on the complexity of the cannabis program
and entities banked. It’s also important to work with the state licensing
authority to ensure the credit union has access to the
The number of Currency Transaction Report and licensing information and documentation through the
Suspicious Activity Report filings will increase expo- state’s website. All appropriate licensing information
nentially upon taking on cannabis businesses. An will be available through the state, and will be essential
effective BSA/AML software is necessary to assist in the verification and monitoring process of
with these filings but will also contribute in monitoring cannabis-related businesses.
and tracking unusual activity for each business entity.
Credit unions should be cautious of third-party service While uncertainty around cannabis banking in
providers that tout the management of BSA compliance Michigan remains, one thing is for sure — with such a
for the cannabis industry for the credit union, as the labor-intensive program, credit unions that decide to
credit union maintains sole responsibility and liability bank with cannabis-related businesses will need to rely
for the program. on technology in order to be successful.
18 THIRD QUARTER 2018 I CONTACT
