In 2019, a $2+ billion dollar, regional institution headquartered in a state with both medical and adult-use cannabis programs, began offering services to businesses in the industry. At the time, they knew only one way to complete the required filing and due diligence requirements, and that was with people. Accordingly, they hired a couple of new employees and invested time in getting them up to speed on the cannabis industry in their market as well as the BSA/AML requirements for such a program.
The newly-formed team knew that they were required to match sales activity to deposits and track for anomalies in the account activity that might be an indicator of illicit activity. They understood the requirements around both initial due diligence and ongoing due diligence, as well as CTR and SAR filings. In response, they created a number of systems internally for onboarding, monitoring and filing. As the program grew, so did the team of people required for the care and feeding of this new line of business.
Just after the rollout, the team went through an audit. At the time, they had 26 cannabis-related businesses (CRBs) as customers and solid policies and procedures in place to manage the program. With no findings from the auditors, they were confident in the model they built, which was comprehensive due to hours of exhaustive data entry that would provide them insights into account activity and call out variances that needed attention.
So far so good, right?
Fast forward to their next audit. The institution’s cannabis banking team now consists of 10 FTEs, and they have 128 CRBs on board. While spared from any public findings, the examiners share concerns about the size of the program, the ongoing compliance burden and the institution’s ability to effectively find suspicious activity. The examiners also comment on the level of effort it takes to gather all of the required data for tracking transaction activity, and they express apprehension about the bank's ability to keep up with cannabis regulatory changes across the multiple states in which they are providing services for CRBs.
The recommendation made to the team is that they have grown far beyond the point that they can manage their program manually, and the examiners request the bank reevaluate the expansion of their program until automation software can be put into place.
Finding a Solution
Encouraged by the financial success of their existing program and seeing the value in improving the accuracy and scalability of their processes, the institution set about defining the requirements for automation software. This included the creation of a “must have” list which included key features they believed would help them automate the most critical and time-consuming components of the work they were doing manually. This included:
- Onboarding workflows to ease the initial due diligence and provide consistency
- Transaction verification to ensure all incoming deposits were the result of state legal sales
- Ability to trigger and pre-fill required CTRs and SARs for filing
- Reminders and work flows for ongoing due diligence
- Ability to review a variety of data sets from their core banking system and from other CRBs to spot trends and anomalies
The team reviewed a full list of industry providers before choosing Green Check Verified, which stood out for two main reasons. One, it met all requirements from their “must have” list, and two, they were assured by Green Check’s vast experience in the market and track-record of building regulatory-compliant, highly-efficient programs.
After choosing Green Check, the institution relied on their new software partner to guide both the implementation process and transfer of clients to the new system. This included four steps:
- Program Analysis — reviewing current policies and procedures of the existing program;
- Setup — training users on the new platform;
- Testing — ensuring that all processes are secure and efficient;
- And CRB Onboarding — communicating to existing clients and supporting their integration onto the new platform.
With the support of Green Check, the project team moved their existing 128 CRBs onto the new platform over three months, and they laid the groundwork for continued regulatory-compliant expansion.
After moving from a manual to automated program, the institution saw a dramatic reduction in compliance burden, significant process improvements, exceptional improvements in program performance and success in exceeding examiner expectations.
- Prior to automation, the institution’s cannabis banking team was managing 12 CRB accounts per FTE on average. After implementing Green Check’s compliance solution, they are now able to manage 60-70 CRBs per FTE, making their program significantly more efficient and scalable. This is roughly a 500% increase in capacity.
- Time spent on entering and looking at data has dramatically decreased from 8 hours per month per CRB on average to just 4 hours per month total for their entire portfolio. This includes reconciling transaction data from the core with sales and inventory records from the CRBs’ systems. Consequently, the institution’s cannabis banking team has been able to spend more time analyzing the data in a meaningful way rather than spending all their time keying data into spreadsheets.
- Quarterly SAR filings are now easier to accomplish, and the accompanying narratives provide a new level of detail examiners are coming to expect. This is enabled by Green Check’s industry-first Account Monitoring feature that walks the employee through a workflow of account review which calls attention to any areas that need investigation, and prefills the SAR so that only the report only needs to be reviewed and approved rather than prepared. This eliminates several unnecessary steps in the process as there is no longer a need to bounce back and forth between spreadsheets, the core system and SAR filings too.
- Before adopting automation, getting updated documentation from CRB clients was not only burdensome but also prone to error. With Green Check, a reminder goes directly to the CRB through the client portal, prompting them to upload the necessary documents for review. This eliminates the need to send requests or move documents from emails, mail or faxes to cold storage.
- In their most recent exam, examiners expressed confidence in the team’s ability to keep up with industry changes, due diligence and monitoring. As a bonus, the examiners were able to log into the Green Check system to view the program details and audit trails all in one platform, thus reducing the burden on the staff during the exam.
By adding automation, the bank is able to comfortably execute their plans to double the existing portfolio of CRBs without adding any additional staff. With these automation resources in place, the bank is projecting $45.8 million in revenue for this line of business over the next five years while cutting nearly $1 million in operating expenses.
Additionally, the team found that the level of insight the Account Monitoring feature provided, including peer comparisons and advanced historical performance data, gave them confidence to add lending to their product offerings to clients within this portfolio. This adds an additional $12.6 million of projected interest income bringing the total value of their automated cannabis banking program to $58.4 million over five years.
How Can Compliance Automation Improve YOUR Cannabis Banking Program
Green Check Verified works with financial institutions of all sizes to develop and upgrade programs based on an institution’s specific strategic goals and market opportunity. To better understand how end-to-end automation can support your specific program, please click here to set up a meeting with an expert.
Disclaimer: This document is for informational purposes only. Case study based on a current Green Verified Client that updated from a manual to automated program using Green Check Verified’s software and services. Key information has been changed to protect client confidentiality.