What are everyone's thoughts on this: can an MSB contract out its BSA/AML responsibilities? If so, can they contract them out to a bank? If the bank did take on some of the MSB’s BSA/AML responsibilities, then if the MSB were penalized for its program, could that penalty also be passed, in whole or in part, to the bank?

You've asked an abstract question and no one will be able to offer you anything more than an abstract answer.

Is an MSB considering hiring your bank to conduct its BSA compliance function?

Sorry Ken. Yes. It has been discussed as a possible new venture that our bank or other banks can use as a new income/fee source. I am basically just seeking posters' opinions on the matter. Are you aware of any banks that currently do this? What are your opinions on such a venture, including the risks involved with doing so? I appreciate everyone's input.

Is it an approved line of business for the bank to engage in? Or are you planning to do this through the holding company? You might want to price errors and ommissions insurance before establishing your pricing as if you screw up, the regulators are not the ones you would have to worry aboout. The MSB will sue you.

We have not actually gone beyond the evaluation stage yet. It was strictly an income/fee-raising idea that was suggested. Having not heard of such a "partnership" between true MSB's and banks before, I was hoping to get the posters' opinions on it. Or better yet, perhaps someone knows of a bank that already does this and has done it successfully.

Well, your first stop is determining whether or not you are allowed to operate such a service under your bank charter - everything else is a moot point prior to that determination.

I have never heard of a bank offering such a service.

I am not aware of anyone doing this either. Assuming it falls under permissible activities, you would need to check into liability insurance.