Outsourcing has become a normal part of doing business in financial services. From IT support and cloud hosting to paraplanning, administration and software providers, third-party services allow businesses to scale operations, improve efficiency and access specialist expertise.
However, one of the biggest misconceptions surrounding outsourcing is that responsibility transfers alongside the service.
It does not.
Regulators have consistently reinforced a simple principle: while businesses can outsource tasks, they cannot outsource accountability. This becomes particularly important when cybersecurity incidents occur.
Many AFSL and ACL holders rely on third-party providers to manage critical systems that store, process and transmit sensitive client information. These providers may maintain security controls, monitor networks and manage technology platforms on behalf of the business. Yet if a cyber incident occurs, clients, regulators and stakeholders will still look to the licence holder for answers.
This is where cyber risk becomes a governance issue.
Businesses often assume that because a provider specialises in technology, cybersecurity risks are being appropriately managed. However, incidents frequently occur not because no controls existed, but because oversight of those controls was inadequate.
Common weaknesses include:
- Limited due diligence before engaging suppliers.
- Unclear contractual responsibilities.
- Insufficient monitoring of security controls.
- Lack of independent review or assurance.
- Poor understanding of where client data is stored.
- Inadequate incident response planning.
These issues can remain hidden for years until a cyber event exposes them.
The challenge is that technology environments continue to evolve. Businesses may engage new software providers, adopt cloud services, use offshore support teams or integrate additional systems without fully reassessing their cybersecurity exposure. As the number of third parties increases, the attack surface often increases with it.
This creates a significant compliance obligation for Responsible Managers, compliance teams and business owners.
Strong cyber governance requires organisations to understand:
- Which third parties have access to sensitive information.
- What cybersecurity controls those providers maintain.
- How incidents are identified and reported.
- What contractual protections are in place.
- Whether ongoing monitoring arrangements remain effective.
Importantly, cyber governance should not be viewed solely as an IT function. Effective oversight requires involvement from senior management, compliance teams and governance committees. Cyber risk is now operational risk, compliance risk and reputational risk combined.
The businesses best positioned to manage this risk are often those that treat third-party providers as part of their overall control environment rather than external entities operating independently.
Regular reviews, due diligence assessments and independent oversight all help strengthen confidence that outsourced functions remain appropriately governed.
Ultimately, outsourcing may change who performs a task.
It does not change who remains responsible when something goes wrong.
Call to Action
Outsourcing a function does not outsource responsibility.
Responsible Managers and Compliance Teams should use their Independent Licensee Review, recommended at least every two years, to help assess third-party risks, test outsourcing oversight arrangements and identify gaps in their governance.
It is also important to review and update policies to ensure outsourcing arrangements, accountabilities and monitoring requirements are clearly documented and aligned with current risks.
AICS Independent Licensee Reviews help AFSL and ACL businesses identify third-party risk exposures, strengthen governance frameworks and ensure outsourced providers remain appropriately managed.
If you would like to review your cyber governance framework, click here to contact Cheyenne and the team, email [email protected] or call 07 3251 2481.
