Many financial institutions avoid serving potentially risky business clients. They don’t want to deal with the regulatory complications. For many, “de-risking” is a key focus in today’s climate.
But for banks and credit unions that are able and willing to take on these risks, there is also great opportunity. One such bank that has seen success with so-called risky clients is Surety Bank of DeLand, Fla.
“For the most part banks look at high-risk accounts and they just want to move away from them,” says Ryan James, Surety Bank’s CEO. “They want to de-risk and just get away from it. So, there’s actually a giant hole there we are looking to fill. “
Surety, which has assets of $183 million, has invested in innovative technology, in part so it can have an influence far beyond its geographic footprint in central Florida. And that is exactly what it’s doing.
How They Serve Bitcoin ATM Operators
Take its work processing Bitcoin ATMs; the cash that flows in and out of these machines needs to be carefully monitored due to various regulations required by the Bank Secrecy Act. Surety Bank tracks cash in and out of vaults, as well as things like wallet address for those who use the machines, blockchain transaction hash codes, monitoring for shell companies and checking over licenses for each of the operators of the Bitcoin ATMs.
Furthermore, different states have different regulations around Bitcoin ATMs. “In some states, money transmitter requirements declare that you must acquire a money transmitter license,” according to an article in Cointelegraph. “Any operator without a license is committing an imprisonable offense, even if it has completed every other step toward compliance. Therefore, it’s important to research the specific states in which you are operating to avoid any difficulty.”
Similarly, when banking legal cannabis firms, Surety needs to be able to monitor many different variables, not just related to the growers and dispensaries, but also those indirectly related to the cannabis industry, such as vendors, employees and landlords that are involved in the cannabis trade. They also need to monitor differences between various state and federal laws.
Real-Time Data Feeds Are Essential
Surety is able to serve such higher-risk clients because of the actionable data it receives in real time from its core system, James states.
The system, from Nymbus, uses open architecture which allows the bank to integrate different data feeds directly and get a real-time look at things, the CEO adds.
James says that if the bank could not get a single view of all these data sources, it would be nearly impossible to serve such clients. “It really enables us to ensure we are compliant.”
Having a real-time core system enables Surety Bank to get a single view of the data needed for regulatory compliance.
“Nymbus understands that innovative financial institutions can do their best work when provided with technology and partners that enable them to do things differently,” says Michelle Prohaska, chief compliance officer at Nymbus. “We leverage our compliance knowledge and experience to help them execute upon building the future of banking.”
Taking Compliance into Their Own Hands
Ryan James says it was always the bank’s intention to be proactive and take ownership of its regulatory compliance operations. He says he is amazed by how many banks often outsource compliance operations to a third party.
“We have a pretty in-depth BSA department,” he adds. Many of the Bitcoin ATM customers who came to Surety said the banks they first approached didn’t know what the regulatory requirements were.
Surety Bank is a founding member of a crypto regulatory advisory group, the Chicago-based Cryptocurrency Compliance Cooperative. The group “is a collaborative association that advocates on behalf of the cash-to-cryptocurrency industry to establish universally accepted compliance standards, Know Your Customer (KYC)/Anti-Money Laundering (AML) best practices, and Economic Sanctions and regulatory controls,” according to its website.
Surety does not shy away from banking clients that may be considered risky by other financial institutions, and being part of such industry cooperatives is a key to doing so.
“Anything that’s new is going to attract bad actors,” James says. “That’s why it’s so important to establish standards.”
Though small, Surety Bank aims to fill an unserved niche by offering services to industries that are typically considered too risky to bank.
Technology is also a major differentiator that can help banks stay compliant, adds Nymbus’ Prohaska.
“The availability of customization, configuration, and automation leveraged via technology solutions can allow financial institutions to make their compliance program a differentiator, rather than the typically thought of cost center,” she says.
Adds James: There’s a big opportunity out there when it comes to banking such businesses. “Even many of the larger banks have limited BSA departments. As a smaller bank we can fill a niche in this area and really become experts in that.”