Site Visits: Financial Institutions vs. State Regulators

Stephanie Wandell
|
October 17, 2019

With Halloween around the corner, it’s time to talk about an urban myth: financial institutions who bank cannabis need to “dress up” as state regulators when it comes to performing cannabis-related businesses (CRBs) site visits. That is not the case. Read on to learn the four points to consider when conducting site visits: 

Each individual financial institution (FI) gets to determine the purpose or even the existence of a site visit. FIs are not capable of - or expected to perform site visits in the same way state regulators conduct CRB site visits.

Don’t Be Afraid of Due Diligence
Site visits are a routine part of due diligence procedures, especially for high-risk accounts.

FinCEN Guidance requires financial institutions serving CRBs to conduct due diligence that includes:

  • Verifying licenses and registration with the appropriate state authorities;
  • Requesting information about the business and related parties (especially third parties) from state licensing and enforcement authorities;
  • Developing an understanding of normal and expected day-to-day activities for the business, including the types of products to be sold and the types of target customers to be served (e.g., medical versus recreational);
  • Conducting ongoing monitoring of publicly available sources for adverse information about the business and related parties;
  • Conducting ongoing monitoring for suspicious activity, including for any of the red flags described in the FinCEN guidance or the Cole Memorandum; and
  • Updating due diligence information on a periodic basis and commensurate with the risk.

How Do Site Visits Play a Role in Your Cannabis Banking Program?
The goals of an FI site visit is to learn more about the CRB overall and to catch any obvious violations or issues of concern. Site visits are meant to help FIs develop an understanding of what day-to-day business activities look like for a CRB - as noted in FinCEN guidance - and should be a part of routine due diligence procedures. Here are four points to consider and relevant questions to ask when conducting CRB site visits: 


Licensing. Due diligence for CRB accounts should include asking the business to “produce satisfactory documentation or evidence to demonstrate that it is duly licensed and operating consistently with state law”.

  • Is the CRB’s state-issued license posted and clearly visible in a public area?

  • Does the license match the information provided by the CRB in their application?


Facility & Security. Given the high-risk nature of CRBs, you must be confident that the business has effective measures in place to protect staff, customers and patients from crime and diversion.

  • Is there a clear differentiation between employee and customer areas?

  • Are visitors required to sign-in/out and be escorted by staff at all times?
     
  • What security measures are in place to secure cannabis products? 

Operations. You must develop an understanding of what the normal and expected activity is for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers).

  • Does the CRB have processes in place to confirm a patient or customer’s eligibility to purchase cannabis?

  • What types of products are on display and what products are available for sale?

  • Are cannabis products under staff supervision at all times?

  • Can the CRB demonstrate that staff is appropriately trained?

  • Are patients or customers allowed to consume cannabis onsite?


Overall Observations & Goals of Your Site Visit. Finally, it is important to make note of the overall observations you make during your site visit. While you are there so make observations and ask questions, it is helpful to keep in mind what your goals are for the site visit. As mentioned earlier, your financial institution is not expected to play the role of a state-level licensing body.


How Green Check Helps
Whether your financial institution is already banking cannabis or in the middle of developing your cannabis banking program, it’s important to make sure you’re aligned with best practices for mitigating risk. In addition to having access to our compliance software, financial institutions using Green Check also have access to our team of regulatory and compliance experts that can help by answering any questions about how to conduct CRB site visits and provide templates to use when on site.

We’ve developed a Readiness Assessment designed to help your financial institution identify the current controls you already have in place to mitigate the inherent risks in banking cannabis. Click here to schedule your personalized Readiness Assessment with today.

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