In September 2019, the U.S. House of Representatives passed the Secure and Fair Enforcement (SAFE) Banking Act to address the emerging and increasingly urgent issue of whether banks can legally serve legitimate, state-legal cannabis-related businesses.
The bill would prohibit federal banking regulators from penalizing or criticizing banks for providing financial services to cannabis-related businesses, creating a safe harbor for institutions that serve the cannabis industry. It addresses the growing safety concerns of the industry for its employees and owners that operate cash-only businesses.
The U.S. Senate received the bill later that month and referred it to the Senate Committee on Banking, Housing and Urban Affairs. While the bill was a hot topic when it was introduced in the Senate, other matters and priorities may delay the measure’s progress. Once through the Senate, the bill would reach the president’s desk for final approval.
Regardless of the actions taken by the Senate and president, it is clear that addressing a depository institution’s ability to provide financial services to cannabis-related businesses without penalty or regulatory criticism is an important matter for the banking industry and for the government to address.
A Closer Look at the Bill
The bill provides safety to individuals associated with cannabis-related businesses by allowing them to use the U.S. banking system, which currently is inaccessible due to federal regulation. It would grant cannabis-related businesses access to financial services that most companies use daily, such as business checking accounts, electronic payment processing, employer-sponsored retirement accounts and small business loans.
According to the bill, a depository institution shall not, under federal law, be liable or subject to penalty for providing a loan or other financial services to a cannabis-related business. It prohibits federal banking regulators from:
- Terminating or limiting deposit insurance solely because the institution provides services to cannabis-related businesses.
- Prohibiting or penalizing banks from providing services to cannabis-related businesses.
- Recommending, encouraging or incentivizing banks not to offer financial services to an account holder, solely due to their relationship with a cannabis-related business.
- Taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased or sold to such a business.
The bill also states that a depository institution may not be held liable, pursuant to any federal law or regulation, solely for providing a financial service or from investing any income derived from providing a financial service to a legitimate, state-legal cannabis-related business.
Banks should begin assessing their risk appetite as it relates to the growing cannabis industry in preparation for legislation that allows them to serve cannabis-related businesses without penalty or regulatory criticism at some point in the future.
Once the legal aspects are resolved, we expect that many banks will take the opportunity to serve cannabis-related businesses as a way to grow loans and noninterest income and obtain lower-cost deposit relationships. At the same time, we anticipate other banks will be cautious about serving the industry, given the stigma and reputational concerns.
Banks should follow their normal risk management practices when considering services to the cannabis industry:
- Conduct research to understand the cannabis industry and related operations.
- Consider your institution’s risk appetite and if you are willing to serve the cannabis industry.
- Tailor policies to address cannabis-related business specific matters, such as underwriting requirements, collateral considerations, customer due diligence and suspicious activity monitoring.
- Provide training to employees within the institution who will serve customers in the cannabis industry.
- Monitor developments in the regulatory and governmental space as it relates to cannabis.
We also expect the Federal Financial Institutions Examination Council will develop and issue guidance and examination procedures soon for those depository institutions serving state-legal cannabis-related businesses.