Regulators Ease Oversight of Hemp Businesses

Financial Services Law

In new guidance, banking regulators eased oversight of financial institutions working with hemp-related businesses.

The joint statement from the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation (FDIC), Financial Crimes Enforcement Network (FinCEN), Office of the Comptroller of the Currency (OCC) and Conference of State Bank Supervisors (CSBS) clarified that a Suspicious Activity Report (SAR) is not required solely because a customer is engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.

What happened

In 2018, Congress passed the Agriculture Improvement Act, which removed hemp—defined as cannabis not containing more than 0.3 percent of tetrahydrocannabinol, or THC, on a dry weight basis—from the list of Schedule I controlled substances under the Controlled Substances Act (CSA). The law created a pathway for states to become the “primary regulatory authority” over all hemp production in their jurisdiction and directed the U.S. Department of Agriculture (USDA), together with the Attorney General, to otherwise regulate hemp production.

Following the directive, the USDA issued an interim final rule in October 2019 establishing the domestic hemp production regulatory program to facilitate the legal production of hemp. States and tribal governments may submit plans for monitoring and regulating the production of hemp to the USDA, with a federal licensing plan needed for locations where states and tribal territories do not have their own plans.

Pursuant to the USDA’s interim final rule, hemp may be grown only with a valid USDA-issued license or under a USDA-approved state or tribal plan.

With this program in place, the banking regulators offered guidance for financial institutions working with hemp-related businesses.

“Because hemp is no longer a Schedule I controlled substance under the Controlled Substances Act, banks are not required to file a Suspicious Activity Report on customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations,” the regulators wrote.

For hemp-related customers, banks are expected to follow standard SAR procedures and file a SAR if indicia of suspicious activity warrant.

“Bank customers engaged in hemp-related business activities are responsible for complying with the requirements set forth in the 2018 Farm Bill and applicable regulations,” the regulators added.

The statement explained that deciding which types of services and accounts to offer remains the responsibility of the financial institution, reminding banks to have a Bank Secrecy Act/anti-money laundering compliance program in place, commensurate with the level of complexity and risks involved.

“When deciding to serve hemp-related businesses, banks must comply with applicable regulatory requirements for customer identification, suspicious activity reporting, currency transaction reporting and risk-based customer due diligence, including the collection of beneficial ownership information for legal entity customers,” the regulators said.

The statement noted that FinCEN will issue additional guidance “after further reviewing and evaluating the USDA interim final rule.”

To read the joint guidance, click here.

Why it matters

The new guidance provides clarity for financial institutions working with hemp-related businesses and mirrors a similar statement from the National Credit Union Administration. However, the Federal Reserve Board, FDIC, FinCEN, OCC and CSBS made sure to remind banks that “marijuana is still a controlled substance under federal law,” as the 2018 Farm Bill amended the definition of marijuana only to exclude hemp from the CSA. While some states, like California, have clarified that they will not bring regulatory actions against state-chartered banks or credit unions for establishing a banking relationship with a licensed cannabis business, federal regulators have not taken such a position. Accordingly, financial institutions must ensure they fully understand the nature of the business they are working with before concluding that it is only “hemp-related” and not broader in scope.

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