Section Overview Of SAFE Banking Act

Visit to view the legislation. This review was prepared by MBA.

Section 1 — Bill Title and Purpose

Although the subject matter has been expanded, the bill title (SAFE Act of 2019) is not changed and it retains its original purpose statement to ensure access to financial services to cannabis-related “legitimate businesses” and service providers. 

Section 14 — Definitions

It is helpful to review defined words and terms before reviewing the rest of the bill. 

There are 14 definitions for words and terms used throughout the bill. A key term is “cannabis-related legitimate business,” which means a manufacturer, producer or any person or company acting pursuant to state law that participates in the cannabis (broadly scoped) industry. Other terms such as the “business of insurance” and “financial service” are defined for purposes of ensuring access to these important services. The term “financial service” is broadly scoped to ensure access to insurance; banking; payment systems, including payment cards; and money transfer services, including money transmitters and armored car services.

Section 2 — Regulatory Safe Harbor for Depository Institutions

Federal banking regulators are prohibited from terminating deposit insurance or sanctioning depository institutions that provide financial services to CRLBs, service providers or to a state (or political subdivision or Indian Tribe) that exercises jurisdiction over CRLBs. The section goes on in considerable length and detail to ensure the effectiveness of this regulatory safe harbor. 

The regulatory safe harbor expressly applies to de novo institutions.

Section 3 — Protection for Ancillary Business

Business transactions in proceeds derived from the activities of CRLBs are deemed not unlawful solely because the transaction involves a CRLB as party. This protection recognizes that a CLRB or a vendor doing business with a CLRB is protected related to the regulated cannabis activities but could still be sanctioned, reported or prosecuted if engaged in suspicious or criminal conduct outside the scope of the state sanctioned activity or in violation of the state sanctioned activities.

Section 4 — Protections Under Federal Law

Depository institutions and their officers, directors and employees may not be held liable under federal law for providing financial services to CRLBs. Federal Reserve banks and Federal Home Loan Banks and their officers, directors and employees may not be held liable under federal law for providing services to depository institutions that provide financial services to CRLBs. 

Insurers and their officers, directors and employees may not be held liable under federal law for engaging in the insurance business with CRLBs. 

Depository institutions’ legal interest in collateral for a loan or financial service related to a CRLB shall not have their interest subject to criminal, civil or administrative forfeiture for extending the related service to a CRLB.

Federal Reserve Banks and Federal Home Loan Banks that have a legal interest in the collateral for a loan or financial service provided to a depository institution that provides a financial service to a CRLB shall not have their interest subject to criminal, civil or administrative forfeiture for providing the loan or financial service.   

Section 5 — Rules of Construction

Nothing in the SAFE Banking Act shall require a depository institution or insurer to provide financial services to a CRLB.

Please note that if the SAFE Banking Act passes and is enacted, marijuana will continue to be a Schedule I controlled substance. Although the costs, risks and uncertainties associated with providing financial services to a CLRB will be significantly reduced if the SAFE Act becomes law, it will continue to more challenging and costly to extend financial services to CLRBs, including payment services, as compared to general businesses. Many banks could continue to limit their exposure to CLRBs, and the SAFE Banking Act preserves this discretion.

Nothing in the SAFE Act may be construed as limiting general examination, supervisory and enforcement activities of federal banking regulators, provided that the basis for the action is not the provision of financial services to a CLRB or service provider.  

Section 6 — Requirements for Filing Suspicious Activity Reports

If the reason for filing a SAR relates to a CRLB, the report shall comply with FINCEN requirements. The Treasury secretary shall ensure that FINCEN guidance related to CRLBs is consistent with the purpose of the SAFE Banking Act and does not significantly inhibit the provision of financial services to CRLBs and to service providers. This provision essentially will require FINCEN to issue additional guidance regarding the Bank Secrecy Act and antimoney laundering in relation to CRLBs.

For purposes of this section, “cannabis” has the meaning given the term “marijuana” under the Controlled Substances Act. Other terms also are defined for purposes of SARs and consistent with related laws and the SAFE Banking Act.

Section 7 — Guidance and Examination Procedures

The Federal Financial Institutions Examination Council is provided 180 days to develop uniform guidance and examination procedures for depository institutions that provide financial services to CRLBs.

Section 8 — Annual Diversity and Inclusion Report

Financial regulators shall issue an annual report to Congress addressing the availability of financial services for minority- and women-owned CRLBs and provide recommendations to expand access to these minority-owned CRLBs.

This burden falls on the regulators, not banks, although banks may be the object of recommendations to Congress.

Section 9 — GAO Study on Diversity and Inclusion

This section requires the comptroller general to study barriers to marketplace entry for minority- and women-owned CLRBs, including CLRB licensing and access to financial services. The comptroller general shall report findings and recommendations to Congress.

Section 10 — GAO Study on Effectiveness of SARS to Identify Transnational Crime and Infiltration of CRLBs

The comptroller general shall study effectiveness of SARs to identify transnational criminal organizations and determine the extent, if any, that these organizations have infiltrated or targeted CLRBs.

Section 11 — Banking Services for Hemp Businesses

The bill identifies the Agricultural Improvement Act of 2018 that distinguished hemp from marijuana and legalized hemp. The act recites that hemp businesses continue to have difficulty gaining access to banking products and services, particularly for CBD businesses. Within 90 days of enactment, banking regulators are directed to issue guidance to financial institutions confirming legality of hemp and hemp products, including hemp-derived CBD, and issue best practices. 

Section 12 — Application of Safe Harbors to Hemp and CBD Products

Section 12 generally applies the SAFE Banking Act access provisions to businesses in hemp, hemp products and hemp-derived CBD. SAR provisions at Sections 6 and 10 do not apply.

Section 13 — Requirements of Deposit Account Termination Requests and Orders

This section expressly prohibits federal banking agencies from formally or informally making a request or order to terminate a specific customer account or group of customer accounts or to otherwise restrict or discourage a depository institution from entering into or maintaining a banking relationship with a specific customer or group of customers, unless for a valid reason that is not based solely on reputation risk.

Requests or orders may issue for threats to national security or related to terrorist financing or state sponsors of terror. Any request or order for these or other valid reasons must present the basis for the request or order, and customers must be so informed. However, if such notice would impair national security or interfere with a criminal investigation, notice of justification will not be required.

The federal banking agencies shall issue reports to Congress annually stating the aggregate number of specific account terminations and describing the various legal authorities relied upon and the frequency with which such various legal authorities were invoked.

Missouri Bankers Association
October 2019