Key Takeaways:

  • The positive momentum for federal cannabis reform continues: shortly after the momentous rescheduling announcement, the Senate Banking Committee unveiled a revised, bipartisan version of the SAFE Banking Act.
  • The Committee will vote on the bill as early as September 27, 2023.
  • Rescheduling and SAFE each have a real likelihood of success in the months ahead.

Fresh on the heels of intense optimism over the Department of Health and Human Services' recommendation that cannabis be rescheduled, another key federal reform is in motion. On September 27, 2023, the Senate Committee will hold a hearing on a revised version of the SAFE Banking Act. We have fingers doubly crossed that the next few months could see both rescheduling and SAFE create history – and great economic benefit – for the state-legal cannabis industry.

On September 20, 2023, a bipartisan group of senators unveiled a revised version of the SAFE Banking Act, renamed the Secure and Fair Enforcement Regulation (SAFER) Banking Act. The legislation was revised after months of back-and-forth between leadership and members of the Senate Committee on Banking, Housing, and Urban Affairs, who are poised to mark up the legislation this week.

Key changes were made to the legislation to break the months-long Senate impasse. The below captures those changes and what it could mean for passage this Congress.

Overview of Key Changes
There are several notable changes from the original bill introduced earlier this year focused on Section 10, "Requirements for Deposit Accounts."

The latest version includes a "Sense of Congress" subsection, stating Congress' view regarding Federal banking agencies' authority to oversee depository institutions and stating that depository institutions should not decline to provide banking services to categories of customers, instead taking a risk-based approach.

The "Conditions for Termination" subsection is broadened to provide regulators greater authority to pursue entities in violation of the law. The subsection states that federal banking regulators cannot "request or require," which is a change in the bill from "formally or informally," termination of an account unless there is now a "valid reason."

To establish a valid reason for termination, banking regulators must have reasonable cause that a depository institution or affiliated entity is engaged in unsafe or unsound practices, or is in violation of the law or rule or regulation. The new bill adds text emphasizing money laundering and financing of terrorism as violations, as well as any activity that has led to the issuance of a matter requiring immediate attention or board attention, a document of resolution, or a supervisory recommendation. It also grants federal agencies other reasons at the discretion of the federal banking agency to seek termination.

The new bill strengthens the "Treatment of National Security Threats" subheading under the conditions for termination to include "Illicit Finance Threats," defined as if an entity is engaged in illicit conduct supporting a transnational criminal organization, drug trafficking organization, or money laundering organization.

In the "Customer Notice" subsection, the bill expands on when notice would be prohibited in cases of national security to include law enforcement investigations and other cases, including language to prohibit notice if notifying a customer would disclose the existence of suspicious transaction, violation, or reveal other information.

The bill adds new language under the "Reporting Requirement" subsection, requiring federal banking regulators to submit an annual report to Congress on the number of deposit accounts requested or required to be terminated that year, as well as the legal authority which the agency relied on in making each request or requirement. It also grants the Inspector General the chance to evaluate or review and submit a report to the Congressional committees.

A new subsection was added titled, "Increasing Access to Deposit Accounts for Businesses and Consumers," which would require new regulations or guidance to increase access to deposit accounts for businesses and consumers, and should include standards for: (1) entering into and maintaining individual consumer relationships and with categories of customers; (2) increasing access to deposit accounts in rural and underserved areas; (3)Tribal communities; (4) innovative technologies to increase access to deposit accounts while maintaining appropriate third-party oversight; and for (5) features of a deposit account that are responsive to "unbanked businesses or consumers."

The new bill also calls for the Federal Deposit Insurance Corporation (FDIC) to conduct a biennial survey on the efforts of depository institutions to provide greater access to small and medium-sized businesses that have historically encountered issues.

The final subsection establishes a rule of construction not limiting the ability of a federal banking regulator from identifying or discussing issues involving a depository institution's financial condition, governance, consumer protection, internal controls, or compliance issues associated with the Bank Secrecy Act.

What Comes Next?
Members of the Senate Banking Committee will markup the bill this week, and these changes will be closely scrutinized. If it advances out of committee it could put pressure on the House Financial Services Committee to consider and review the issue more closely, especially if the full Senate takes up the bill this fall.

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