It is no secret that banks struggle to effectively serve small businesses. Internal battles to serve these clients have existed within financial institutions for quite a while: battles between commercial banking teams claiming to offer more of the functionality these customers need and the consumer teams promising greater solution ease of use. Unfortunately, in recent years, the size of the battlefield has grown. Banks are no longer just fighting internally and among themselves—a new set of players have set their sights on these customers, and their impact is growing.
The FinCEN guidance provides substantial clarification around filing SARs and CTRs for marijuana-based businesses. In essence, the guidance states institutions should file SARs and CTRs as if the customer is an illegal business, though not necessarily terminate the account. This could easily cause some confusion, since this deviates from the normal practices; in most cases, an entity known to be operating illegally would be terminated along with the SAR filing.
Most organizations have rather mature and effective transaction monitoring systems in place, but they may not be ready for these new types of businesses and their transaction patterns. For example, with a marijuana dispensary or retailer, many of their customers choose to pay in cash, which will result in large daily cash deposits (more on this later). Transaction monitoring systems will need to accommodate differences in behavior with this sort of business.
In a previous post we looked at some of the challenges posed by the interplay between state and federal laws and the guidance that impacts how banks could service marijuana business that are legal at the state level but not at the federal level. Both the New York Times and the BBC have published pieces about these businesses’ challenges in obtaining banking services because financial institutions are hesitant to service them.