Last week, the National Credit Union Administration (NCUA) issued new guidance (“Guidance”) for federally-chartered credit score unions serving the hemp business. All of us at Harris Bricken had been excited to see the Guidance launched: NCUA retained us final fall to advise the federal government on this challenge, and now we have all the time represented credit score union shoppers as to hashish enterprise companies.

The Guidance is structured in an simply digestible Q&A format: it comes with clarifications, assurances and no actual surprises. Fundamentally, the Guidance is “advisory and provides no new expectations or requirements for credit unions.” At challenge is the affect that hemp companies banking could have on credit score union obligations beneath the Bank Secrecy Act and implementing laws, generally often known as anti-money laundering authorized authority (“AML”).

Before we get into a couple of key points, although, some context could also be useful.

First, it’s vital to know what NCUA is and does. NCUA is an impartial federal company that gives deposit insurance coverage to all federal credit score union depositors (and most state credit score union depositors). It additionally charters and regulates federal credit score unions. If you’re a credit score union member, your deposit is nearly definitely insured by one thing referred to as the National Credit Union Share Insurance Fund. Many individuals have heard of the Federal Deposit Insurance Corporation (FDIC), which gives deposit insurance coverage to financial institution clients. NCUA is a sister company.

Second, it’s vital to notice that NCUA is not a commerce or advocacy group. The Credit Union National Organization (CUNA) fills that position for each state- and federal chartered credit score unions. CUNA has been vocal historically on hashish banking reform, however CUNA has no energy to constitution or regulate the credit score unions themselves. Thus, federally-chartered credit score unions would look to NCUA, not CUNA, for steerage on hemp banking. (And state-chartered credit score unions would look to their respective state divisions of economic companies.)

Regarding the Guidance itself, there are 17 questions and solutions—and credit score unions ought to assessment every of them fastidiously–however I’ll break it down into a couple of key ideas.

Know the Law

This is essential to hemp banking, particularly because the legislation continues to evolve. Although credit score unions aren’t required to file Suspicious Activity Reports (SARs) for normal hemp consumer transactions, they’re anticipated and required to maintain up with developments on the U.S. Department of Agriculture (USDA), the Food and Drug Administration (FDA) and related state and tribal packages.

The Guidance doesn’t divide hemp companies into classes (e.g. farmer, processor, topical or edible items producer) for functions of declaring which hemp companies are appearing lawfully; as an alternative, credit score unions are inspired to “consult qualified legal counsel and the appropriate federal and state authorities” for this evaluation. Whether sure hemp companies are “acting lawfully” will probably be one of many more difficult areas for credit score unions to evaluate, and setting coverage on this space will probably be key for each board.

Know the Hemp Business

The Guidance additionally mentions a necessity for “due diligence procedures for hemp-related accounts.” Most monetary companies legal professionals would say that this begins with “know your customer” (KYC), a compulsory technique of figuring out, verifying and periodically confirming a buyer’s id over time. KYC processes are designed to enact AML necessities and forestall unlawful schemes. In the context of hemp banking, KYC will probably be particularly essential as many operators will try to launder gray- and black-market marijuana {dollars} by the hemp banking ecosystem.

KYC apart, the Guidance talks about fundamental diligence touchstones (e.g. state licensing info, sustaining info on the land the place the hemp is produced) and notes that the character and extent of enterprise diligence will fluctuate relying on the kind of credit score union service supplied. For instance, the institution of a fundamental depository account will contain completely different enquiry that underwriting an gear mortgage.

Broad Services Authorized

One normal thrust of the Guidance is that hemp-related companies could also be handled like different agriculture companies, with particular consideration to the extremely regulated nature of the business. This implies that credit score unions can supply hemp companies a full suite of merchandise and companies, within the context of the credit score unions’ monitoring and diligence necessities.

Does this imply that hemp companies pays extra for credit score union companies than different agricultural companies? Yes it does. We foresee issues settling out for the hemp business someplace between what marijuana companies pay for credit score union companies, and what different farmers pay.

Guidance Ongoing

The Guidance is not the first providing by NCUA, and it received’t be the final. Other federal companies have additionally weighed in with hemp banking steerage, and will proceed to take action because the legal guidelines and business evolve (cf. joint statement provided by the FDIC, the Office of the Comptroller of the Currency and others).

Overall, hemp banking is a major market alternative for credit score unions. But hemp is not corn or wheat or sugar beets, and credit score unions that need to work on this house want to return ready.

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