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PART TWO Q&A: Building a High-Risk Banking Program.



RiskScout’s Director of Compliance, Kristin Parker, explained how acknowledging your exposure to risk is the first step in building an achievable higher-risk banking program: Creating an Achievable Higher-Risk Banking Program: A Q&A. In the second part of this Q&A, she dives deeper into the concrete steps for understanding the nuances of any and all higher-risk markets served, as well as using technology tools to scale a successful program over time.


Q: Educating staff is critical to compliance. What are the best practices in terms of training employees when they’re working within a higher-risk banking program?


A: You really want to be seeking out subject matter experts and partners to understand the markets. If the higher-risk market has existed for a while, there might be some materials out there to educate the core group of individuals who are going to be hands-on with this program.


Regardless, there needs to be an emphasis on consistently seeking out new information. When you’re involved in higher-risk markets, whether they’re new or existing, trends are always developing, and requirements might change. There also may be different requirements from a state-law perspective on what higher-risk clients are and aren’t allowed to do. That’s why you need to have a subject matter expert, and you need to have a contingency plan if your subject matter expert leaves. Without a contingency plan, you put all this time and effort into a program that no one is going to be able to pick up and replicate.

Internally, though, institutions need to be training all lines of business on how to detect and redirect higher-risk clients so they can be vetted properly prior to onboarding. Sometimes that’s much easier said than done if you don’t have the right technology tools or processes in place.


Training should be done annually, if not every six months, and the training should really hone in on the message that everybody is on the same page here. Nobody gets past this door until they go through this pathway to get approved. For new hires, this type of training should be a requirement before they’re allowed to get onto the computer and begin doing their job.


Q: How can technology help financial professionals better understand—and mitigate—risk?


A: Technology is necessary if you want to scale a program. If you have the right technology tools in your pocket, you can streamline not only your compliance requirements but your customer experience, your employee experience, and your regulator experience, too. You can sit here and vet, verify, and manage all your higher-risk portfolio in one platform, if you have the right technology in place. In that way, technology is your contingency plan.


The right technology is also going to take into consideration the little nuances that happen in banking this space, in general. Whatever tools you invest in should be nimble enough to change with the different requirements that come with banking higher-risk industries. And the technology should be able to help you detect any particular anomalies that may be happening before the client onboards, as well as after they already are your client.


Q: Finally, are you seeing the attitudes of financial professionals changing when it comes to risk? And when you consider higher-risk banking over, say, the next three-to-five years, how do you see this area developing or changing?


A: You’re seeing financial institutions getting a little bit more creative in who they’re banking, and creative in terms of revenue sources, diversifying their portfolios, and lending perspectives. There are so many challenger banks out there… The traditional means of banking your Mom-and-Pop stores and your neighbor next door are probably not going to keep a bank or credit union above ground for long.

We’ve got over 35 states that have legalized cannabis in some form or fashion. It’s not long before we add another four or five states to that. [Higher-risk banking] is in your backyard, and banks are starting to say, “Wow, this could be a real opportunity for me.” It really boils down to being a competitive institution. You don’t want to wind up in the left-behind arena.


Banks are a little bit apprehensive, but they understand [higher-risk customers] might be their pathway to growing their institution. They also may be a pathway to really fulfilling what financial institutions should be doing, which is serving their communities.

 

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This is your private resource group for financial institutions to ask questions, get advice, and learn from experts on providing financial services to higher-risk specialty business markets including: Private ATM, Hemp & CBD, Crypto, MSB, Cannabis (THC), Fintech, and more.




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