We are an asset manager, and we have both RIA and a broker dealer, both of which are owned by a bank holding company subject to BSA/AML. I am wondering if the BSA/AML rules apply to a registered investment advisor who is not a standalone RIA but owned by an entity regulated and subject to BSA/AML? Not only we provide investment advice to funds, but also we administer funds, meaning we onboard investors to the funds. We also a limited purpose broker dealer, so the BD underwrites our funds.

My understanding is that the definition of financial institutions under BSA or USA PATRIOT Act does not include a RIA. However, however, FinCEN had proposed a rule for Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers back in 2015, which have not been finalized or become effective yet. In addition, SEC No-Action Letter on 12/18/2018 indicates that a broker dealer can rely on other financial institutions including RIA or affiliates for CIP/BO requirements of the customers when those affiliates have BSA/AML program in place, which I interpret as RIA subject to BSA/AML.

If BSA/AML and SAR filing requirements apply to RIA, does it mean that RIA should have transaction monitoring program in place to detect, investigate and report suspicious activities? As you imagine, funds are not transacted directly through customers to us, but through a third party custodian, which is subject to BSA/AML. Can we assume that those custodians may monitor the transactions on their end, and that relieves our responsibility for SAR requirements?

I can't help regarding your questions about whether requirements apply, but I can give some input on your last paragraph. If you are subject to SAR filing requirements, the fact that another institution also has SAR filing requirements on the same transactions would not absolve you of your responsibility. If you have SAR filing responsibilities, you must have a compliance program to assure you're meeting those. That does not necessarily mean a software transaction monitoring program.

Your ability to detect suspicious activity though is reliant on the information that you know, so if the suspicious part of a transaction is not occurring at your institution, there's no way you should have been able to detect it.

If you're subject to BSA requirements, a money laundering risk assessment would help to answer what the scope of your compliance and transaction monitoring program should be.