The Financial Crimes Enforcement Network (FinCEN) and Anti-Money Laundering (AML) regulations require financial institutions, including insurers, to conduct thorough due diligence on their customers to ensure compliance with state cannabis laws. FinCEN issued guidance for insurers that can be found here. While there is no specific FinCEN rule explicitly mandating insurers to validate cannabis licenses, AML guidelines and compliance rules necessitate that insurers verify their clients’ adherence to state laws to avoid facilitating illegal activities.

AML regulations require thorough due diligence on customers to understand their business nature and associated risks. Since cannabis remains illegal at the federal level in the United States, compliance with state cannabis laws is critical to prevent inadvertent facilitation of illegal activities. For more detailed guidance on AML requirements and how they apply to insurers in the cannabis industry, you can refer to then FinCEN website and the FDIC’s resources on AML/CFT compliance.

Insurers must perform due diligence as part of their Customer Due Diligence (CDD) and Know Your Customer (KYC) obligations, which include understanding the nature of their customers’ business and ensuring compliance with relevant state laws, particularly in high-risk industries like cannabis. Non-compliance with these requirements can expose insurers to significant legal and financial risks, including regulatory penalties and the denial of insurance claims.

Insurers offering policies to clients must adhere to state regulations and ensure their practices align with legal and regulatory requirements. This is crucial to avoid potential liabilities and ensure the legitimacy of their coverage. Each state that has legalized cannabis has its own set of regulations governing the cannabis industry, and insurers operating in these states must comply with these rules. Part of this compliance involves verifying that their licensed operators are fully compliant with state laws.

While there’s no explicit federal law mandating insurers to validate cannabis licenses and ensure compliance, state regulations, risk management principles, and best practices effectively necessitate such actions.