VBP releases offshore outsourcing guide following ASIC review

Vital Business Partners (VBP) has released a new guide in the effort to encourage financial advice businesses to reassess their outsourcing agreements with offshore service providers (OSPs), after the Australian Securities and Investments Commission (ASIC) handed down a warning last month identifying several compliance and risk assessment issues.

The regulator’s review found there were “significant variations in the quality of risk management arrangements in relation to the use of offshore staff” and that without proper oversight over the performance and suitability of their offshore arrangements, “licensees and advisers are exposed to critical risks” as a result of “the loss of control over key functions to OSPs, disruptions to operational services and conflicting obligations due to foreign laws”.

Nathan Jacobsen, VBP chief executive, said the governance and compliance failings identified in the ASIC report emphasised the importance of engaging with experienced outsourcing specialists and service providers with a strong track record of risk management to ensure both clients and the advice business itself are safeguarded.

“VBP is highly supportive of ASIC’s recommendations and heightened focus on offshore outsourcing to ensure that both consumers and advice businesses are not unnecessarily exposed to harm, such as their data being stolen through cyber incidents,” he said.

“Whether a business has a direct outsourced contracting arrangement or uses an intermediary, the obligations around areas like data, privacy and cyber security are the same. For those that choose to go direct, sole responsibility for assessing and monitoring outsourcing risk can be a significant burden.

“It is in the best interests of consumers, advisers and the broader industry that all parties involved in the provision of advice, including suppliers and contractors, operate with a continuous focus on improving information security practices.

“The risks are only rising guaranteeing further regulatory scrutiny, and possibly intervention, if the industry cannot effectively and proactively manage these risks.”

Jacobsen confirmed VBP’s 18-page guide seeks to help advice businesses remain compliant with their legal obligations related to outsourcing arrangements, given ASIC’s warning urged licensees to bridge governance gaps and address weaknesses in their use of offshore providers.