South Dakota Division of Banking Issues Medical Cannabis Guidance

The South Dakota Division of Banking on Nov. 18 issued medical cannabis guidance to South Dakota state-chartered banks which plan to provide financial services to marijuana-related businesses (MRBs). Prior to offering financial services to MRBs, institutions must have appropriate risk management practices in place, which the Division of Banking lays out in the guidance.

During the 2020 general election, South Dakota voters passed Initiated Measure 26 to legalize medical cannabis in South Dakota. During the 2021 South Dakota Legislature, House Bill 1203 was approved, which authorizes banks to engage in business with industrial hemp or marijuana licensees and associated persons.

“Even if your institution doesn’t plan to offer financial services to medical cannabis growers or dispensaries, it is possible you will have other customers indirectly involved with medical cannabis, such as contractors, commercial landlords and transportation companies,” said Division of Banking Director Bret Afdahl. “Your institution could be providing indirect services to a MRB in these situations, and you should have policies and procedures in place to guide staff and identify, monitor and report on these customers, as appropriate.”

While medical cannabis is now legal in South Dakota, cannabis remains a Schedule 1 controlled substance and illegal under federal law. The memo does not cover recreational marijuana use in South Dakota, which remains illegal.

Read the full South Dakota Division of Banking guidance.

South Dakota Supreme Court Strikes Down Recreational Marijuana Amendment

The South Dakota Supreme Court on Nov. 24 ruled against a 2020 voter-approved ballot measure, Constitutional Amendment A, to legalize recreational marijuana in South Dakota.

The Supreme Court’s opinion upheld a Circuit Court decision that found Constitutional Amendment A violated a provision requiring amendments to the South Dakota Constitution encompass only one subject.

“South Dakota is a place where the rule of law and our Constitution matter, and that’s what today’s decision is about,” Gov. Kristi Noem said following the Supreme Court ruling. “We do things right—and how we do things matters just as much as what we are doing. We are still governed by the rule of law. This decision does not affect my Administration’s implementation of the medical cannabis program voters approved in 2020. That program was launched earlier this month, and the first cards have already gone out to eligible South Dakotans."

ABA, Trade Groups Urge Senate to Include Cannabis Banking Bill in NDAA

ABA joined a broad coalition of industry trade groups in a letter urging Senate leadership to include the SAFE Banking Act in the upcoming National Defense Authorization Act. The provision already was included in the House version of NDAA, which was passed in September.

The SAFE Banking Act would provide clarity to financial institutions looking to serve legitimate cannabis businesses, in addition to creating a safe harbor for depository institutions serving cannabis-related businesses in states where such activity is legal. Currently, more than 35 states have legalized cannabis for medical or adult use, but current federal law prevents banks from safely banking cannabis businesses, including ancillary businesses that provide them with goods and services.

“A safe harbor would not only enable law enforcement and states to effectively monitor and regulate cannabis transactions and businesses, but it would bring billions of dollars of tax revenue out of duffel bags and safes and into the regulated banking sector,” the groups wrote, acknowledging that passage would be a “critical first step” in a multistep process to ensure that legal cannabis marketplaces are safe, legal and transparent. Read the letter.

OCC Interpretive Letter Addresses Crypto Activities, Chartering of Trust Banks

In an interpretive letter issued last week, the OCC confirmed that national banks and federal savings associations may engage in certain cryptocurrency activities but added a note of caution that banks would be required to “demonstrate, to the satisfaction of its supervisory office, that it has controls in place to conduct the activity in a safe and sound manner.”

Among the legally permissible activities—as articulated in previously issued interpretive letters—are the provision of cryptocurrency custody services; the holding of dollar deposits serving as reserves to back stablecoins in certain circumstances; acting as nodes on an independent node verification network to verify customer payments; and engaging in certain stablecoin activities to facilitate payment transactions on a distributed ledger.

The interpretive letter also addressed the OCC’s standards for chartering, or approving the conversion to, a national trust bank, noting that “the OCC retains discretion to determine if an applicant’s activities that are considered trust or fiduciary activities under state law are considered trust or fiduciary activities for purposes of applicable federal law.” The OCC emphasized that “an applicant’s activities will not automatically be deemed to be trust activities—or to be fiduciary activities—solely by virtue of state law.” Read more. For more information, contact ABA’s Rob Morgan or Matt Daigler.

Regulators Planning Crypto Guidance for Banks

Banks can expect additional guidance from regulators over the next year clarifying the types of crypto-related activities they may be permitted to engage in, the agencies announced in a joint statement on Nov. 23. As a result of a recent “crypto sprint,” the FDIC, Federal Reserve and OCC unveiled a crypto-asset roadmap that will guide their work in 2022.

Specifically, the agencies said that they will issue guidance related to crypto-asset safekeeping and traditional custody services; ancillary custody services; facilitation of customer purchases and sales of crypto-assets; loans collateralized by crypto-assets; the issuance and distribution of stablecoins; and activities involving the holding of crypto-assets on a bank’s balance sheet. In addition, the agencies said they will also evaluate how to apply bank capital and liquidity standards to crypto-assets.

During the crypto sprint, regulators said they developed a common vocabulary regarding the use of crypto-assets, identified and assessed key risks—including those related to safety and soundness, consumer protection and compliance—and analyzed the applicability of existing regulations to identify potential gaps. Read more. For more information, contact ABA’s Rob Morgan or Matt Daigler.

Court Stay of Vaccine Mandate Expected to Remain in Place Through Dec. 10

The Fifth Circuit Court of Appeal’s stay of the Occupational Safety and Health Administration’s vaccine mandate is expected to remain in place until at least Dec. 10, based on a court order filed right before Thanksgiving. OSHA’s vaccine mandate, if allowed to become effective, would require employers with 100 or more employees to be vaccinated or tested weekly for COVID-19.

The Fifth Circuit had ordered OSHA to “take no steps to implement or enforce the [vaccine] Mandate until further court order.” In response, OSHA stated that it had “suspended activities related to the implementation and enforcement of the ETS pending future developments in the litigation.”

After the Fifth Circuit issued its order, the several challenges to the vaccine mandate by governors and private entities were consolidated in the Sixth Circuit. That court asked for briefing in the case by Dec. 10. Any action by the Sixth Circuit likely will result in an appeal to the Supreme Court.

Read the court order.
Read ABA’s staff analysis .
For more information, contact ABA’s Tom Pinder or Jonathan Thessin.

IRA Basic Seminar to Be Held Virtually Dec. 7 and 9

The SDBA will hold the IRA Basic Seminar on Dec. 7 and 9 virtually via Zoom. Times on both days are 9 a.m. to noon CST. The seminar will give attendees a solid foundation of IRA knowledge.

Real case problems and examples are included to help participants apply information to job-related situations. Attendees will leave this session able to work with IRA holders and process basic IRA transactions with confidence. This course goes in a logical order from opening an IRA, to talking about contribution rules, then on to distribution rules and regulations, which includes RMDs and death distributions. The course will also address moving money as a transfer or rollover

The course is for all new IRA staff, people who are in a backup position or an IRA support person wanting to stay current. This is also a great review course for those who have been away from IRAs for a couple of years. Learn more and register.

Registration Open for 2022 NDBA/SDBA Bank Management Conference

Great weather and an amazing resort are ready to welcome bankers, business partners, spouses and guests for the 2022 NDBA/SDBA Bank Management Conference to be held Feb. 18-19 at The Westin Kierland Resort & Spa in Scottsdale, Ariz.

The conference program will feature banking trends as well as presentations on cryptocurrency, phishing and cybersecurity, mobile banking apps, market conditions and leadership through service. In addition to the business sessions, bankers will enjoy networking opportunities, golf at the Westin Kierland Golf Club, and spouses and guests are invited to a special breakfast and “Pasta Making 101” demonstration.

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Question of the Week

Question: Is a bank required to notify customers of a deposited check being returned?

Answer: Yes, Regulation CC, § 229.33(h), requires providing notice to a customer of a check being returned by midnight of the banking day following the banking day on which the bank receives notice of the check either being returned or nonpayment. A notice provided in accordance with this section may also satisfy the exception hold notice requirements, if the bank will place an exception hold on the basis of the nonpayment notification and otherwise meets the exception hold notice requirements.

Notification to customer. If the depositary bank receives a returned check, notice of nonpayment, or notice of recovery under §229.35(b), it shall send or give notice to its customer of the facts by midnight of the banking day following the banking day on which it received the returned check, notice of nonpayment, or notice of recovery, or within a longer reasonable time. Regulation CC, § 229.33(h) - https://www.ecfr.gov/cgi-bin/text-idx?SID=35b0b61237b153e41051d2fd905844bb&mc=true&node=se12.3.229_133&rgn=div8 Home Mortgage Disclosure Rule, p. 2 https://files.consumerfinance.gov/f/documents/cfpb_final-rule_home-mortgage-disclosure_regulation-c_2020-04.pdf

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