The corporate regulator will maintain an agnostic stance on offshoring arrangements by licensees with findings from a review expected to be released later in the year.
Cited as a key corporate priority previously, ASIC Commissioner Alan Kirkland told the Professional Planner Licensee Summit in the NSW Blue Mountains on Monday morning that the regulator is at the “very early stage” of a review of offshoring.
Kirkland said they are yet to form a view about how well licensees are performing in this area or whether there are any causes for concern, and that more information on the review will be revealed later in the year.
“From our work today, we understand that’s driven by two key factors, being cost and potentially local skill shortages, with the main functions being outsourced appearing to be financial planning administration and paraplanning services,” Kirkland said.
“To be clear about our view on these practices, we are agnostic about the use of offshore outsourcing.”
With findings from the review due later this year, Kirkland acknowledged that there’s no explicit guidance on when and how it is reasonable to outsource financial advice functions overseas, but said that ASIC’s Regulatory Guide 104 ‘AFS licensing: Meeting the general obligations’ should create the basis for how licensees manage offshoring arrangements.
“While there may be potential benefits to clients to/and? consumers from offshoring through efficiencies and lower fees, we are alert to the potential risks, particularly in relation to technology, data and privacy,” Kirkland said.
“We’re also concerned consumer trust could be severely undermined if businesses are not transparent about their use of offshore outsourcing or have inadequate processes or resources for managing risk.”
Kirkland said that if any function is being delivered offshore, it needs to be approached in the same way as if it was being delivered by an employee based in Australia. This included assessing their qualifications, how data is being handled, the cybersecurity controls in place, how are the outcomes of their work being measured and how risks are being audited.
“There was a time when it was an easy way to reduce costs by just getting other people to do things,” Kirkland said.
“People increasingly understand that doesn’t mean you’re off the hook for the quality of work that’s done, and you need to be thinking about that from the very beginning of procurement.”
Managing conflicts
Private credit is a key area of interest with surveillance and a review of funds in the retail and wholesale sector underway.
Earlier this month, fellow commissioner Simone Constant told the Fiduciary Investors Symposium, held by Professional Planner sister publication Investment Magazine, that the regulator would be “accelerating” private credit oversight amidst its review into public and private markets.
Kirkland said the regulator is interested how valuations work in the asset class and how assets are being revalued, as well as governance processes and disclosure.
“How are conflicts of interests being managed – particularly when you’ve got a range of related funds that may well be exchanging assets between them,” Kirkland said.
“Disclosure, [and] what are investors being told at the outset about what they’re being invested in.”
Earlier this year Professional Planner uncovered a shelved review ASIC conducted into managed accounts, which raised concerns over conflicts of interest and that current regulations were not fit for purpose to protect consumers in the booming market.
Kirkland said ASIC is not doing further work on managed accounts, but should it be pursued again in the future, conflicts of interest – and how they’re being managed – would be the key area of interest.
“We’ve got really long-standing regulatory guidance in that space that will provide a framework against which we would then look at how people involved in the provision of managed accounts are managing those conflicts,” Kirkland said.
“But we haven’t decided whether to do that, but it is something we are thinking about because its several years since we’ve had a deep look at it and because of the growth of the use of managed accounts.”
Missing experience
Kirkland also reminded the licensees in the room that the education standard deadline looms and it was incumbent on them to make sure their authorised representatives had the correct information on the ASIC Financial Advisers Register.
Advisers have until 1 January 2026 to confirm they have an approved qualification or are eligible for the experience pathway.
The regulator’s latest spot check from earlier this month found of the 15,610 relevant providers listed on the Financial Advisers Register, 6426 hold an approved degree or qualification.
“Based on our reconciliation of the numbers there are 4604 who have yet to meet the qualification standard,” Kirkland said.
“It’s possible that some of these relevant providers may be eligible for the experience provider pathway but their AFSL licensees are yet to advise use of that.”
Kirkland further reminded the industry several errors and inconsistencies have been found during their review of the register.
“Some relevant providers have declared they’re relying on the experience provider pathway when they don’t appear to be eligible,” Kirkland said.
“Others have claimed qualifications when the course has not yet been completed or it’s not an approved course of study.”
Kirkland said more action may be taken in the lead up to the deadline and that a compliance program will also commence in the new year to determine whether relevant providers may remain authorised to continue to provide personal advice to retail clients.
