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Cannabis: A budding business gets a boost from compliance tech

Taking a page from challenger banks' playbook, traditional banks and credit unions are focusing on niches to stand out in a mass of competitors.

By Miriam Cross

The excerpt below is part of a full article in American Banker, "5 market niches banks are reaching with technology," published on April 22, 2022. Read the full article in American Banker.

A growing number of banks are banking cannabis businesses. Technology is helping them scale up their efforts and ensure they remain compliant in a regulatory and legal gray area. It also gives them a head start over banks that are waiting for legislation on the federal level.

West Town Bank & Trust, a subsidiary of Integrated Financial Holdings in Raleigh, North Carolina, uses software from RiskScout, a provider of an onboarding and due diligence platform that focuses on high-risk markets. This helps the $411.4 million-asset bank filter prospective customers and conduct intensive know-your-business checks that take negative news and more into account. Lead Bank, in Kansas City, Missouri, turned to Dama Financial, a company that helps banks handle cannabis businesses, for help sourcing customers, initial due diligence and ongoing monitoring.

“There is a very high resource requirement to bank the cannabis industry and we would not be able to do it to this level without partnering with a fintech like Dama,” said Danny Schneider, the Bank Secrecy Act officer at the $738.4 million-asset Lead Bank, in a February interview.

Needham Bank, in Needham, Massachusetts, announced that it would acquire Eastern Bankshares’ cannabis banking operation in early 2022. “As we prepared to enter the cannabis banking business, we took a holistic look at our infrastructure to ensure we were capturing the right information in each channel at account opening,” said Paul Evangelista, director of specialized banking at the $2.9 billion-asset bank.

That meant collaborating with its core data service provider COCC to ensure it was capturing the right data for compliance and monitoring purposes, and bringing on two new technology providers: Shield Compliance to automate customer onboarding and monitoring, and Verafin to monitor transactions and to create currency transaction reports and suspicious activity reports.

This article originally published in American Banker.

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