ASIC has published its reviews of risk management of the use of offshore service providers among responsible entities (REs) of registered managed investment schemes (funds), and Australian financial services advice licensees and their representatives.
The reviews found that the quality of governance and risk management arrangements relating to the use of offshore service providers varied significantly, with some entities failing to have a framework in place.
In the funds review, ASIC expressed concern about risks related to data and technology, particularly protection of client information, and the risk of an RE losing control over the people and processes dealing with outsourced business functions.
In the advice licensee review, ASIC found that risk frameworks for overseas service providers varied widely: several licensees lacked formal offshore outsourcing policies, did not conduct regular audits or ongoing oversight, and many relied on their offshore providers’ representations about their cyber and data security standards.
ASIC was concerned that most of the advice licensees reviewed did not have adequate arrangements in place for the assessment, appointment and ongoing monitoring of offshore outsourced services used by their representatives. Instead, they rely on the representative to ensure risks are managed appropriately.
ASIC emphasised that RE’s and advice licensees retain ultimate responsibility under the Corporations Act 2001 for the operation of their financial services businesses, including where they outsource to OSPs.
While REs are able to outsource functions, including investment management, custody, fund administration and transaction processing services, REs remain responsible for complying with their obligations.
While advice licensees are able to outsource functions, including administrative functions, advice support services and paraplanning, licensees remain responsible for complying with their obligations.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
