How a Credit Union Tackled Cannabis Bank Compliance | Credit Union Journal

Since starting with the Southern Chautauqua Federal Credit Union in Lakewood, New York, more than eight years ago, Lindsay Hubbard has made it her goal to lead her institution in the world of cannabis banking.

When she joined the credit union, “I realized that there was still such an awful stigma around cannabis, and that’s something that has never put me off personally. … So I wanted to be able to examine that and I quickly discovered that there were limited resources available to the industry, and I wanted to be a solution for them,” said Hubbard, the credit union’s chief compliance officer.

The SCFCU, with assets of $129 million, announced the launch of Flora, its new cannabis banking program, on October 6. Farmers and other sellers in the marijuana industry who meet SCFCU’s membership requirements can open a business account and use services such as savings and verification. , investment, online banking and more.

As long as members operate within legal boundaries and the credit union has methods to regulate and monitor transactions, the risks associated with serving potential customers are manageable, Hubbard said.

As part of the initiative to develop Flora’s framework for the integration and collection of information necessary under the regulations of the Bank Secrecy Act, the credit union has partnered with the company Green Check Verified of Bonita Springs, Florida. The tech company offers financial institutions tools to track and verify money coming from their cannabis customers, as well as the bespoke reports needed to classify currency transaction records and suspicious activity reports.

Kevin Hart, CEO and Founder of Green Check, discussed how streamlining transaction documentation and analysis processes with the addition of technology helps reduce the compliance burden on financial institutions.

“Just because someone has a license from the state, they can’t show up with a duffel bag full of cash like Scarface and say let’s do business together. … There’s so much more complexity and it’s is where the technology comes in because it allows Lindsay to be a compliance officer, not a cannabis regulator,” Hart said.

Hart pointed out that by integrating directly into each cannabis customer’s financial accounting system, the company can run transactional data through its compliance algorithm while reducing the cost and hassle associated with verifying each transaction. .

Because cannabis is not yet federally legalized, many financial institutions are still reluctant to get involved in the industry. The National Credit Union Administration sees this as an opportunity for credit unions to step in as suppliers for underserved marijuana businesses seeking access to traditional financial products.

“Helping these businesses access legitimate financial services, where they can transact electronically, deposit funds and ensure reliable access to affordable credit will only help drive this growth,” said Council Member Rodney Hood. of the NCUA, in a press release. prepared speech at the Emerging Markets Coalition in Washington. “We need to give them a ramp into the mainstream financial services system.”

Institutions such as the Vermont State Employees Credit Union, with $1.1 billion in assets in Montpelier, and the Needham Bank, with $3 billion in assets, in Needham, Massachusetts, are deepening their roots within the pot banking industry as the regulatory climate surrounding cultivation evolves.

Other examples include Safe Harbor Financial, a cannabis banking company launched by $589 million partner Colorado Credit Union in Arvada. Last year as a subsidiary and led by its then CEO Sundie Seefried, who then left the credit union to focus on the new business. The company was recently acquired by Northern Lights Acquisition for $185 million in cash and stock.

Seefried explained that the total burden varies depending on the volume of business a credit union will put on its books, leaving smaller institutions combat compliance costs.

“Right now we file 1,000 reports a month and you can’t miss any of those reports, according to the regulations,” Seefried said. “When I talk to financial institutions at that time, I pretty much tell them that if you’re going to build a large portfolio, you probably shouldn’t be below $300 million to $400 million in assets because we see institutions financial flows in and out due to resource issues.”

Even with the potential indemnities of the Safe and Fair Banking Act (SAFE) that would protect institutions interacting with cannabis companies, experts at the Credit Union National Association say other risks also come into play at the federal level.

“A couple of risks that credit unions need to bear in mind is that they could face criminal liability for [serving] a company that engages in this activity because it is federally illegal, the NCUA could revoke the credit union’s charter and terminate the Share Insurance account,” and many others, said Madison Rose, director of the advocacy and consulting for payments and technology at CUNA.

Credit unions positioned to reach underserved communities and businesses in their membership areas may see cannabis consumers as the next opportunity, provided it’s feasible, Rose said.

“It’s about being able to serve the members in a way that they need, [as] that’s what credit unions are for. … Our mission is to serve our members where they are and this could be one way to do that,” Rose said.