The use of third‑party providers is now a routine feature of many advice and licence structures. Marketing agencies, lead generators, referral partners, outsourced paraplanners and administrative service providers all play a role in how clients are acquired and serviced. While these arrangements can support scale and efficiency, they also introduce governance and accountability risks that remain firmly with the licence.
Regulators have been increasingly clear that outsourcing does not shift responsibility. Where a third‑party provider influences client engagement, advice pathways or decision‑making, licensees are expected to demonstrate effective oversight, due diligence and ongoing monitoring. In practice, this expectation often extends beyond formal service agreements to include how these providers operate day‑to‑day.
AICS reviews frequently identify governance gaps in which third‑party arrangements are poorly documented or inconsistently monitored. In some cases, licence‑level responsibility is assumed rather than actively managed, with limited evidence of ongoing assessment, escalation processes or accountability frameworks. This can leave licensees exposed if issues arise, even where the provider is operating independently.
Effective governance of third‑party providers requires more than initial onboarding. Licensees should clearly understand how providers interact with clients, what representations are made on the licensee’s behalf, and whether those activities align with regulatory and AFCA expectations. Regular reviews, clear reporting lines, and documentation are essential for demonstrating control over outsourced activities.
As regulatory scrutiny continues to extend upstream, licence‑level ownership of third‑party risks is becoming a core governance requirement rather than a best‑practice option.
The ultimate prize is well‑governed third‑party arrangements that support scalable operations while maintaining regulatory confidence, licence accountability and client trust.
The consequences of inaction are unmanaged third‑party risks, regulatory findings against the licence, reputational damage and remediation obligations arising from activities the licence did not directly control.
Outsourcing is now a core part of financial services delivery, but it has also become one of the most scrutinised areas of regulatory risk. ASIC has made it clear: you can outsource services, but you cannot outsource accountability.
Recent regulatory focus has highlighted consistent gaps across AFSL and ACL licensees:
- Weak or inconsistent due diligence and onboarding of third-party providers
- Limited ongoing monitoring, performance oversight, and audit
- Inadequate controls around privacy, data security, and cyber resilience
- Poor visibility of how third parties are using technology and AI within advice and operational processes
This is not just a compliance issue; it is a governance failure point. ASIC has identified third-party providers and supply chains as some of the weakest links in cyber preparedness, with direct consequences for client data, operational continuity, and regulatory exposure.
The risk is compounded by current regulatory expectations:
- Cyber resilience is now an enforcement priority, with licensees required to demonstrate robust frameworks covering both internal systems and third-party providers
- Licensees must maintain adequate risk management systems under s912A, including risks arising from outsourcing and technology dependencies
- AI adoption is outpacing governance, with ASIC identifying a clear gap where technology is being used faster than controls, policies, and oversight are being implemented
- APRA CPS 230 is raising the bar across the industry, requiring formal service provider management frameworks, continuous monitoring, and clear accountability at the board level
Together, these expectations point to one conclusion:
If your third-party relationships are not governed, documented, and actively monitored, they represent a direct risk to your licence.
Managing third-party risk is not achieved solely through contracts. It requires:
- Clearly defined policies that establish accountability and control
- Embedded processes for due diligence, onboarding, and ongoing monitoring
- Oversight structures that ensure risks are visible, escalated, and addressed at the leadership level
Without this, businesses remain exposed regardless of how capable their providers appear.
AICS supports licensees to take back control of third-party risk through:
- Independent review of outsourcing and third-party arrangements, including privacy, cyber and AI risk exposure
- Assessment of your policy framework and governance controls, ensuring accountability is clearly defined and operational
- Practical guidance to implement and embed controls, not just document them
- Identification of gaps between what is expected and what is happening in practice
Critically, governance is reinforced through quarterly Compliance Committee Meetings, where:
- Third-party risks, audit findings and emerging issues are independently presented
- Accountability is clearly assigned and tracked through to remediation
- Leadership has ongoing visibility of risk exposure across providers, systems and processes
Don’t let your third-party providers become your greatest unknown risk.
ASIC has made it clear that outsourcing without control, oversight, and accountability is a direct governance failure. With increasing scrutiny on cyber resilience, data storage, privacy protection and AI usage, the risk is no longer theoretical.
Engage AICS to review your third-party arrangements, strengthen your policy and governance framework, and embed practical controls that ensure your licence remains accountable—regardless of who delivers the service.
Support this with quarterly Compliance Committee Meetings, where AICS independently presents risks, tracks actions, and ensures governance is active, visible, and defensible. Contact – Australian Independent Compliance Solutions
References
ASIC – Regulatory Guide 104: Licensing: Meeting the general obligations
ASIC – Information Sheet 13: Outsourcing of services by AFS licensees
AFCA – How we make decisions: AFCA approaches
Treasury – Delivering Better Financial Outcomes: Policy materials and consultation papers
