Financial advice licensees have been cautioned by ASIC regarding the use of offshore services, despite their cost-effectiveness. Following a review of 10 licensees utilizing offshore service providers (OSPs), ASIC identified vulnerabilities that could jeopardize consumers and investors. These OSPs encompass various services such as financial planning assistance, administrative support, paraplanning solutions, and client communications.
ASIC’s scrutiny extended to six OSP businesses with a collective client base of over 1,000 AFSLs or representatives. Concerns raised by ASIC include risks related to client data confidentiality, technology issues, data breach detection, operational disruptions, and oversight challenges in managing offshore processes and personnel.
The regulator’s review revealed significant disparities in risk management frameworks among advice licensees and responsible entities (REs) concerning the evaluation of offshore service quality. Many licensees lacked robust procedures for selecting, appointing, and monitoring offshore services used by their representatives.
Advice licensees were urged by ASIC to ensure diligent selection of service providers, continuous performance monitoring, and prompt action in cases of service level agreement breaches. Commissioner Alan Kirkland emphasized that licensees cannot delegate their core responsibilities when outsourcing, underscoring the need for independent risk assessment and performance evaluation.
While outsourcing operational functions, especially paraplanning services, has become essential for advice practices, Kirkland highlighted the escalating cyber threats and emphasized the importance of governance frameworks to maintain public trust in the financial system.
Industry experts echoed the importance of robust cybersecurity measures, especially in the face of increasing cyber-attacks. Brian Jones, CEO of VAP, noted that outsourcing has transitioned from a practice limited to large corporations to a necessity for small and medium-sized businesses seeking operational efficiency.
Fraser Jack, founder of The Cyber Collective, emphasized the potential financial repercussions of inadequate cybersecurity measures, stating that prevention is significantly more cost-effective than rectification in the event of a breach.
ASIC reiterated its commitment to monitoring governance and risk management frameworks within financial services entities and enforcing accountability when necessary. Enforcement actions against firms like FIIG Securities and Fortnum Private Wealth were cited as examples of ASIC’s proactive approach towards safeguarding consumer interests.
As the financial services landscape evolves, the imperative for licensees to uphold their obligations while leveraging offshore services remains paramount. The industry’s reliance on outsourcing necessitates a vigilant approach to risk management, cybersecurity, and regulatory compliance to ensure consumer protection and business sustainability.
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