ASIC has issued a caution to financial services entities regarding the risks associated with offshore outsourcing, despite its cost-effectiveness. The regulator’s warning comes in response to a review that identified vulnerabilities in the use of offshore service providers (OSPs), potentially exposing consumers and investors to harm.
The review highlighted significant variations in risk management arrangements among financial advice licensees and responsible entities (REs) when assessing the quality of offshore services. Some entities were found to lack a structured framework for evaluating offshore service providers.
According to ASIC commissioner Alan Kirkland, while licensees can outsource services, they remain accountable for their core obligations, emphasizing that neglecting these responsibilities could result in detrimental consequences for stakeholders, including data breaches and cyber incidents.
Licensees are urged to possess the necessary expertise to independently identify risks and evaluate the performance and suitability of offshore providers. Kirkland emphasized that the criticality of the outsourced function correlates with the risks posed to consumers and investors, particularly when oversight is inadequate, especially in international outsourcing scenarios.
The reliance on OSP services is prevalent among advice practices, particularly smaller ones, to manage operational aspects like cybersecurity. This trend has become increasingly essential due to the escalating costs of practice operations. Brian Jones, CEO of VAP, noted that outsourcing has transitioned from being a practice exclusive to large corporations to a vital resource for small to medium-sized businesses seeking operational efficiency.
Fraser Jack, founder of The Cyber Collective, drew parallels between estate planning and cybersecurity, underscoring the importance of preventive measures over reactive responses. Kirkland echoed this sentiment, emphasizing the need for financial services firms to maintain vigilance against evolving cyber threats.
ASIC reaffirmed its commitment to monitoring the governance and risk management frameworks of financial entities, pledging to take action when necessary to address failures. The regulator cited enforcement actions against FIIG Securities and Fortum Private Wealth, where alleged cybersecurity lapses exposed these firms to unacceptable risks.
As the financial industry grapples with the challenges of cybersecurity and offshore outsourcing, the importance of robust risk management practices and regulatory oversight cannot be overstated. With cyber threats on the rise and outsourcing becoming a lifeline for many businesses, maintaining a proactive stance on governance and risk mitigation is imperative for safeguarding consumer interests and upholding public trust in the financial system.
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