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On April 2, House Financial Services Committee Chairwoman Maxine Waters (D-CA) spoke before the American Bankers Association’s Washington Summit to discuss several priorities and emerging issues, including comprehensive housing reform, diversity in financial services, fintech regulation, cannabis banking, and Bank Secrecy Act/anti-money laundering (BSA/AML) reform.
- Housing finance reform. Waters discussed resolving the long-term status of GSEs and several core principles underlying housing finance reform including, among other things, (i) maintaining access to the 30-year, fixed-rate mortgage; (ii) ensuring sufficient private capital is available to protect taxpayers; (iii) requiring transparency and standardization that ensures a level-playing field for all financial institutions especially community banks and credit unions; (iv) maintaining credit access for all qualified borrowers; and (v) ensuring access to affordable rental housing. “Many of the proposals for housing finance reform exclude small financial institutions from being able to access the secondary mortgage market. I believe that the inclusion of small financial institutions must be a critical part of any conversations about GSE reform,” Waters stated.
- Diversity in financial services. Waters discussed the newly formed Diversity and Inclusion Subcommittee (previously covered by InfoBytes here) when noting that minority representation in financial services management positions remains underrepresented. The new subcommittee will examine diversity trends to promote inclusion. “Diverse representation in these institutions, and particularly at the management level, is essential to ensure that all consumers have fair access to credit, capital, and banking and financial services,” Waters stated.
- Fintech regulation. Waters commented that fintech regulation is a committee priority. Waters stated that it is important “we encourage responsible innovation with the appropriate safeguards in place to protect consumers and without displacing community banks.”
- Cannabis banking. Waters highlighted her committee's work last month in advancing HR 1595, which would create protections for financial institutions that provide services to state-sanctioned cannabis-related businesses. The bill would create a safe harbor for depository institutions that would bar federal banking regulators from terminating banks’ deposit insurance or otherwise penalize them if they provide services to a cannabis-related legitimate business or service provider.
- BSA/AML reform. Waters discussed a hearing that was held to look at “common sense” improvements that could be made to the current BSA/AML framework. She further stated that the committee is considering beneficial ownership legislation, in addition to exploring ways to work with the Financial Crimes Enforcement Network regarding BSA/AML reporting.
On March 26, the West Virginia governor signed HB 2538, which establishes a legal banking framework in West Virginia for handling medical marijuana-related funds. Medical marijuana was legalized in 2017 and distribution was authorized to begin July 1. Among other things, HB 2358 permits the state’s treasurer to “competitively bid” one or more financial institutions—including credit unions and non-bank entities—to provide banking services for fees, penalties, and taxes collected under the West Virginia Medical Cannabis Act (the Act). The Act also does not prohibit or otherwise impair a financial institution from providing services to a person or entity involved in a medical cannabis-related business functioning under the Act “solely because the person or entity is a grower, processor, dispensary, owner of any proportion, operator, employee, patient, caregiver, family or household member, financial broker, or other similar person or entity” except that the Commissioner of Financial Institutions has authority to enforce applicable laws and regulations related to ensuring the safety and soundness of a financial institution. HB 2538 serves to provide a solution to banking problems West Virginia has encountered in connection with the Act. HB 2538 takes effect 90 days after passage.
On August 24, 13 state banking supervisors sent a letter asking congressional leaders “to consider legislation that creates a safe harbor for financial institutions to serve state-compliant [marijuana] business, or entrusts sovereign states with the full oversight and jurisdiction of marijuana-related activity.” According to the letter, while 31 states, the District of Columbia, and two territories have legalized medical and/or recreational marijuana use as of August 1, many financial institutions choose not serve marijuana businesses due to a perceived threat of asset forfeitures or criminal penalties. The letter notes that this results in inadequate regulation, cash transactions that are difficult to track, “a diminished ability to identify operators acting to circumvent federal and state licensing and regulatory frameworks,” and concerns for public safety. In addition, according to the state regulators, the rescission of the 2013 “Cole Memo”—which outlined the DOJ’s marijuana enforcement priorities and was relied upon by a limited number of financial institutions—has led to greater uncertainty for banks that serve marijuana businesses. The letter also discusses the Financial Crimes Enforcement Network’s 2014 guidance—which clarifies expectations under the Bank Secrecy Act for financial institutions providing services to marijuana businesses—and further stresses that “the Rohrabacher amendment prohibiting federal funds being used to inhibit state medicinal marijuana programs [is] an impermanent approach that requires a permanent resolution.”
In July, and as previously covered in InfoBytes, the New York Department of Financial Services (NYDFS) issued guidance which encouraged New York state chartered banks and credit unions to consider establishing relationships with regulated and compliant medical marijuana and industrial hemp-related businesses operating in New York. NYDFS stated it will not impose any regulatory action on a New York financial institution that establishes a relationship with a regulated marijuana business as long as the institution also complies with other applicable guidance and regulations.
NYDFS encourages New York state chartered financial institutions to establish relationships with medical marijuana businesses
On July 3, the New York Department of Financial Services (NYDFS), at the direction of Governor Andrew Cuomo, released guidance encouraging New York state chartered banks and credit unions to consider establishing relationships with regulated and compliant medical marijuana and industrial hemp-related businesses operating in New York. According to the guidance, these businesses often rely solely on cash to conduct transactions, because of a lack of access to traditional financial services. The press release announcing the guidance cites to the New York Compassionate Care Act, enacted in 2014, which provides medical patients suffering from “debilitating symptoms and diseases” access to, under strict requirements, medical marijuana. NYDFS is encouraging New York financial institutions to form appropriate banking relationships with these business, because “[p]roviding access to regulated banking services is an essential part of taking the legal cannabis industry out of the shadows and establishing it as a transparent, regulated, tax-paying part of our economy, and a necessary part of fulfilling the goal of relieving the suffering of seriously ill patients.”
NYDFS will not impose any regulatory action on a New York financial institution that establishes a business relationship with legal medical marijuana and industrial hemp-related businesses, as long as the institution also complies with other applicable guidance and regulations, such as the Financial Crimes Enforcement Network’s 2014 guidance—which clarifies expectations under the Bank Secrecy Act (BSA) for financial institutions providing services to these businesses.
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- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
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- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
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