This week, The New York Times reported that banks are saying “no” to pot dealers, even in states where marijuana has been legalized for either medical or recreational purposes. There are some pesky definitions within current regulations that create concerns for banks that might otherwise be glad to get some of that sweet weed money. The issue here is that banks answer first to the whims of regulators and their outdated mandates, not to their customers.
This isn’t the first time banking regulations have held back when it comes to new things. The regulatory system is inherently backward-looking. Rules are created with no insight into future changes that will impact compliance with those rules. Out of uncertainty and fear, many banks simply will not try something new until it has been officially sanctioned and explained in detail by a regulatory agency.
The New York Times states that banks “would like clear guidelines from the government.” Just look at one piece of guidance created to direct banks on providing electronic services. This guidance actually states “delivery of disclosures via electronic means has raised many issues with respect to the format of the disclosure.” That’s right, folks. These agencies are hard at work using your money to regulate the format of disclosures that you probably don’t even read! It’s no wonder banks were so late to get on board with technological developments!
In many of these situations, it’s not as simple as rewriting the law. When congress enacts laws, it then charges various regulatory agencies with creating regulations to enact those laws, regulatory agencies create additional guidance and memos to “clarify” the finer points, and banks create policies to comply with those regulations. All of this creates a massive web to navigate in order to change anything.
When the law is finally changed, Compliance Officers read it and ask questions for clarification and point out flaws. Then it gets re-written until the Compliance Officers most likely end up a bit dizzy if still sane at all and wondering if reading the next version of the rules is even worth the time. It is a ridiculous balancing act where the Compliance Officers cannot wait until the last minute to read the rules because they must have time to adapt, yet they are uncertain about whether they can rely on any given version to be “final.” When the final version does come out, bank personnel have to worry about rewriting policies, procedures, and computer programs as well as training staff on the changes.
All this, just so the bank can serve the customers it is supposed to answer to. At the end of the day, customers are not the top priority for banks, bureaucrats in some regulatory agency are. This is really the root of the problem these emerging small businesses are experiencing, and I’m afraid this is a disease that medical marijuana can’t cure, although perhaps it could be useful for the Compliance Officer.