FinCEN Compliance Made Easy

Complying with FinCEN guidance is one of the most difficult aspects of managing a cannabis banking program.

One of the most difficult aspects of banking cannabis-related businesses (CRBs) is ensuring your financial institution complies with the many stringent regulatory standards governing the industry. One of the foremost agencies financial institutions deal with when it comes to compliance reporting is the Financial Crimes Enforcement Network or FinCEN for short.

Historically, devising a system of reporting to demonstrate compliance has been up to the financial institutions themselves, as no one standard process exists. Green Check is working to change that and make FinCEN compliance easier than ever. Read on to learn more about how.

The elements of FinCEN compliance

Demonstrating your cannabis banking program’s regulatory compliance to FinCEN has several parts. It involves knowing your customers and validating if their business is legitimate and monitoring their financial activity to screen for potential fraud or other crimes. You’ll also file reports with FinCEN to keep them apprised of your ongoing monitoring and any incidents of suspicious activity.

Document validation

When first onboarding a CRB, you must verify some important information. This includes the identities of the business owners, a license to operate a cannabis business, and typical information like an Employer Identification Number/Tax Identification Number, Articles of Incorporation or Operating Agreement, property title and lease, and certificate of insurance. This step is a critical part of a financial institution’s Know Your Customer (KYC) obligations.

This step should be completed during the application period, as you need to validate that the CRB is a legitimate, licensed business before onboarding them into your cannabis banking program. To do so effectively, you must build a comprehensive onboarding process that includes trained and, ideally, accredited cannabis banking professionals who know exactly what to look for.

Check out our full list of cannabis banking documents to request from CRBs applying for a bank account to make sure you’re checking the most important boxes.

Ongoing financial monitoring

After verifying a CRB’s legitimacy and approving their application, financial institutions are responsible for ongoing monitoring of all financial activity. This includes tracking sales data, deposits, and withdrawals, as well as more granular metrics like average transaction amounts or how much cash a business tends to keep on hand and out of the banking system.

Monitoring this data is important because it allows financial institutions to determine what normal cannabis transactions and banking activity looks like, both on an individual customer level and more broadly in their local markets. When anomalous activity occurs, financial institutions are able to flag it as strange and document it, helping to support Anti-Money Laundering (AML) efforts as required of them under the Bank Secrecy Act.

Filing FinCEN reports

Thanks to these ongoing KYC and AML efforts, financial institutions are well-equipped to alert regulators and law enforcement to possible financial crimes, and that’s where reporting to FinCEN comes in. In addition to regular quarterly reviews, which demonstrate to FinCEN that financial institutions are collecting all required data in compliance with cannabis banking regulations, financial institutions must also file Suspicious Activity Reports (SARs) when anomalous or questionable financial activity occurs.

For example, if a CRB has generated an average of $10,000 in monthly sales over 12 months and suddenly does $100,000 worth of business in a month, that could be cause for filing a SAR. The goal of a SAR is to flag activity that could possibly be indicative of fraud, money laundering, or other illegal activity. It’s a financial institution’s responsibility to proactively create and file these reports.

Do these compliance requirements sound too expensive to make cannabis banking profitable? Check out our blog on how to beat the cost of funds for cannabis deposits and develop a profitable cannabis banking program.

How Green Check streamlines compliance

The first cannabis banking compliance programs were clunky. Each one was designed in a vacuum, with little insight into how other FIs handled their own processes. Now that financial services have expanded for the cannabis industry, it’s rare for any FI to build a banking program from scratch.

That being said, there is still no current industry standard by which financial institutions comply with government regulations and FinCEN guidance. In many cases, these financial institutions rely on manual methods of tracking and storing data, which are fraught with inefficiencies and risk of error. Those with compliance programs from the “early days” of cannabis banking are finding their original programs costly and inefficient to run.

This is where Green Check comes in. Green Check has developed a system by which compliance is made faster, easier, and more accurate; in the absence of an industry standard, Green Check Verified offers financial institutions a way to automate much of their compliance monitoring and reporting. Here’s a look at some of the automation Green Check Verified offers financial institutions.

  • CRB verification: When you sign up for Green Check Verified, Green Check validates a CRB’s license for you and alerts you to any negative media about the company. That way, you know from day one if a CRB has ever been accused of illicit activity or has a tarnished reputation for any other reason. You can also trust their licenses are valid and up to date without having to do the clerical work yourself.
  • Streamlined monitoring: Manually tracking CRB sales data is a labor-intensive and error-filled process that limits how much your cannabis banking program can scale. If you’re managing customers manually, you can only onboard so many, as your staff needs ample time to dig into their data, track it, and flag any suspicious activity before creating reports. At Green Check, we’ve seen customers transition away from manual systems and grow their business exponentially, allowing a single full-time employee to monitor more accounts with ease — the time automating monitoring saves means you can serve more customers without sacrificing a robust compliance process.
  • Automated monitoring alerts: Manually tracking CRB financial activity is a disaster waiting to happen. Even if you avoid errors, it is easy to overlook suspicious activity that you are responsible for reporting to FinCEN, which compromises the integrity of your cannabis banking program. With Green Check Verified, you get automated alerts and notifications whenever anomalous activity occurs.
  • FinCEN reporting tools: Thanks to Green Check, you won’t have to create and submit your own FinCEN reports anymore — you can build and file them directly within the system. If you already have a method of filing with FinCEN that works for you, you’re not required to use Green Check. However, if you need one, we’re able to easily build you a centralized solution in the software to make it easier than ever.
  • Direct communication with CRBs: When using Green Check Verified, you’ll have a direct line of communication with your CRBs in the software — no more exiting your reporting dashboard to communicate with them via email or phone. Simply send your client exactly what you’re seeing along with a message and they can reply in the same place, cutting down on the time it takes to connect and keeping everyone organized.
  • Regulator familiarity: While there is no current industry standard for compliance reporting, Green Check has become a familiar name for many regulators. The familiarity they have with Green Check Verified, the reliability of its data, and the capability financial institutions have to file reports directly from the system means we’re a trusted solution for demonstrating your compliance. That’s a big plus when dealing with regulators because they know they can rely on the information you’re sending them through Green Check.
  • Expert support: At Green Check, we operate in legal cannabis markets all over the U.S. and can help you apply the lessons from other state cannabis programs that may apply to you. We can help you interpret the data and coach your team so your compliance process becomes as nimble as it is robust. When you work with Green Check, you won’t just have access to powerful software, but a dedicated partner in building your cannabis financial services program.

The cannabis banking and finance space is still young and the industry remains underserved, so now is the time for financial institutions to get involved in the space and distinguish themselves from the competition. Green Check Verified is designed to help you better serve your customers while making the strict compliance reporting requirements facing cannabis financial institutions more manageable than ever.

Green Check helps cannabis financial services grow

Thanks to the efficiency Green Check Verified offers financial institutions, compliance monitoring and reporting becomes a breeze. That’s critical when you’re trying to gain a foothold in the legal cannabis market. Where financial institutions with manual processes can only support so many customers, those who automate with Green Check Verified can grow their business more quickly and with the certainty that their compliance reporting is comprehensive and accurate.