US agencies clarify financial services legal status and use of alternative data to hemp-related businesses

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WASHINGTON, USA — Four federal agencies in conjunction with the state bank regulators issued a statement clarifying the legal status of hemp growth and production and the relevant requirements under the Bank Secrecy Act (BSA) for banks providing services to hemp-related businesses.

The statement emphasizes that banks are no longer required to file suspicious activity reports (SAR) for customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. For hemp-related customers, banks are expected to follow standard SAR procedures, and file a SAR if indicia of suspicious activity warrants.

This statement provides banks with background information on the legal status of hemp, the U.S. Department of Agriculture’s (USDA) interim final rule on the production of hemp, and the BSA considerations when providing banking services to hemp-related businesses.

This statement also indicates that the Financial Crimes Enforcement Network (FinCEN) will issue additional guidance after further reviewing and evaluating the USDA interim final rule.

The statement was issued by the Federal Reserve Board, the Federal Deposit Insurance Corporation, FinCEN, the office of the Comptroller of the Currency and the Conference of State Bank Supervisors.

Banks can contact the USDA, state departments of agriculture, and tribal governments with further questions regarding the Agriculture Improvement Act of 2018 (2018 Farm Bill) and its implementing regulations.

Use of alternative data

Five Federal financial regulatory agencies issued a joint statement on the use of alternative data in underwriting by banks, credit unions, and non-bank financial firms.

The statement from the Federal Reserve Board (Federal Reserve), the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration (NCUA) notes the benefits that using alternative data may provide to consumers, such as expanding access to credit and enabling consumers to obtain additional products and more favorable pricing and terms.

The statement explains that a well-designed compliance management program provides for a thorough analysis of relevant consumer protection laws and regulations to ensure firms understand the opportunities, risks, and compliance requirements before using alternative data.

Alternative data includes information not typically found in consumers’ credit reports or customarily provided by consumers when applying for credit. Alternative data include cash flow data derived from consumers’ bank account records.

The agencies recognize that use of alternative data in a manner consistent with applicable consumer protection laws may improve the speed and accuracy of credit decisions and may help firms evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system.

 

 

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