Last week, the National Credit Union Administration (NCUA) issued new guidance (“Guidance”) for federally-chartered credit score unions serving the hemp trade. All of us at Harris Bricken have been excited to see the Guidance launched: NCUA retained us final fall to advise the federal government on this venture, and we’ve got 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 difficulty is the impression that hemp companies banking could have on credit score union obligations beneath the Bank Secrecy Act and implementing rules, generally often called 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 essential to know what NCUA is and does. NCUA is an unbiased federal company that charters and regulates federal credit score unions. It additionally offers deposit insurance coverage to all federal credit score union depositors (and most state credit score union depositors), by way of one thing known as the National Credit Union Share Insurance Fund. Many folks have heard of the Federal Deposit Insurance Corporation (FDIC), which offers deposit insurance coverage to financial institution clients. NCUA is a sister company.

Second, it’s essential to notice that NCUA is not a commerce or advocacy group. The Credit Union National Organization (CUNA) fills that function 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 steering 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 regulation continues to evolve. Although credit score unions will not be 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 a substitute, 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 likely be one of many more difficult areas for credit score unions to evaluate, and setting coverage on this space will likely 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 means of figuring out, verifying and periodically confirming a buyer’s identification over time. KYC processes are designed to enact AML necessities and forestall unlawful schemes. In the context of hemp banking, KYC will likely be particularly essential as many operators will try to launder gray- and black-market marijuana {dollars} by way of the hemp banking ecosystem.

KYC apart, the Guidance talks about primary diligence touchstones (e.g. state licensing data, sustaining data on the land the place the hemp is produced) and notes that the character and extent of enterprise diligence will differ relying on the kind of credit score union service supplied. For instance, the institution of a primary depository account will contain totally 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 trade. 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 can pay extra for credit score union companies than different agricultural companies? Yes it does. We foresee issues settling out for the hemp trade 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 steering, and will proceed to take action because the legal guidelines and trade evolve (cf. joint statement provided by the FDIC, the Office of the Comptroller of the Currency and others).

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


Source link