30 responsible entities managing 392 funds, totalling over A$191 billion in assets, have used offshore service providers in the past two years, according to the Australian Securities and Investments Commission. The analysis shows that while these organisations delegate key functions, such as data infrastructure, cloud storage, and investment administration, they remain fully responsible under the Corporations Act of 2001 for all operations, including artificial intelligence, data collection, data sharing, data silos, and cybersecurity.
The findings revealed major gaps in due diligence, oversight, and compliance with Australian regulations. Governance and oversight shortcomings threaten data security and operational robustness. ASIC’s findings show stricter regulatory standards, prompting public sector leaders to act quickly. Leaders must enhance their governance and risk management frameworks to mitigate rising cybersecurity threats and regulatory oversight risks.
Outsourcing risk reform
The 2025 review by the Australian Securities & Investments Commission transformed the regulatory landscape, revealing significant discrepancies in risk management quality among responsible entities involved in offshore outsourcing. A review examined 30 entities managing 392 funds and A$191.4 billion in assets, showing that 17 of these entities used offshore service providers in the past two years.
The regulatory body reiterated that delegating essential functions, such as investment administration, data infrastructure, AI modelling, and cloud storage, does not absolve entities of their responsibilities under the Corporations Act of 2001 and applicable guidance. Entities now face stricter enforcement of RG 104 and RG 259, requiring documented risk-management systems, oversight of third-party providers, clear service-level agreements, and continuous monitoring of data governance, sharing, privacy, and cybersecurity risks.
This policy framework greatly affects digital government initiatives. Without strong controls on offshore outsourcing, public-sector agencies may encounter challenges like data silos, poor data collaboration, reduced system resilience, and heightened cybersecurity risks when using cloud-based and AI-driven services.
Exposing governance gaps
The assessment identified significant shortcomings in how REs manage offshore service providers, particularly in areas involving artificial intelligence systems, data infrastructure, and cloud storage. The main shortcomings highlighted were:
- Due diligence: Many organisations failed to evaluate geopolitical and jurisdictional risks before engaging offshore providers, which led to significant data and infrastructure vulnerabilities in foreign legal frameworks and decreased regulatory oversight.
- Service level agreements: Numerous contracts lacked measurable performance metrics and breach-response provisions, creating ambiguity in accountability when offshore partners fail to meet expectations or jeopardise service integrity.
- Monitoring and supervision: Some entities rely on outdated reporting cycles and fail to implement real-time monitoring, leading to inconsistent oversight. Delays in identifying service failures or cyber incidents have occurred.
- Cybersecurity and data governance: Insufficient oversight of data classification, encryption protocols, and access management increases the risk of data leakage, privacy violations, and reduced control over sensitive public information.
- Loss of control: Insufficient contractual safeguards and fragmented communication with offshore teams undermined the entities’ ability to enforce compliance, protect client data, and ensure continuity during system disruptions.
Identified failures pose significant threats to the security and ongoing functionality of public-sector systems. As data silos grow, information sharing declines, and shortcomings in risk governance weaken the effectiveness of artificial intelligence and digital government initiatives.
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Outsourcing risk alert
Offshore outsourcing organisations must ensure their governance, accountability, and risk-management frameworks meet the highest oversight standards. The Australian Securities & Investments Commission recently examined 30 responsible entities managing over A$191 billion in assets, revealing significant variation in the maturity of risk management systems for offshore service providers.
Boards must function as the highest authority, maintain a comprehensive record of service providers, and ensure outsourcing decisions are visible at the executive level. Conduct thorough evaluations of jurisdictional and operational risks linked to cloud storage, artificial intelligence, and data infrastructure providers. Offshore vendors must comply with Australian data governance and cybersecurity standards. Oversight must include audits of system access, testing incident response protocols, and tracking service level metrics for data sharing and infrastructure uptime.
Business-continuity strategies must align with the organisation’s data collection practices, data silos, and digital-government objectives to ensure resilience in outsourced cloud and AI operations. Organisations that do not unify these functions within a comprehensive framework risk regulatory actions and jeopardise public-sector digital governance.
Digital security crisis
Offshore service providers present serious obstacles to cybersecurity and digital-government goals for public-sector agencies. They undermine control over essential data infrastructure, increase vulnerability to foreign legal frameworks, and weaken cloud-based systems. The regulator recently found that some entities lack frameworks to manage offshore-outsourced functions. Data silos may persist, hindering data sharing and collaboration among government platforms.
Data governance and privacy safeguards weaken quickly when AI systems managing citizen data, cloud storage, and international data pools lack direct oversight from the responsible entity. Identified vulnerabilities increase the likelihood of cyber incidents, delay response times, and diminish system resilience, eroding confidence in digital government services. Public sector leaders, including CEOs, CIOs, and COOs, must recognise that outsourcing offshore without robust accountability and risk management is not just a vendor choice; it signifies a major strategic weakness in Australia’s digital-government framework.
Public-sector entities must act quickly to improve offshore outsourcing governance. The Australian Securities & Investments Commission examined 392 funds and assets worth about A$191 billion, revealing discrepancies in risk-management systems. Organisations that delegate AI, data gathering, sharing, cloud storage, and infrastructure responsibilities must maintain accountability and ensure compliance with regulatory standards in RG 104, RG 259, and RG 132.
Revise outsourcing policies to tackle offshore risks, implement measurable service-level agreements, boost internal capabilities to monitor third-party performance, and integrate cybersecurity with business-continuity frameworks for data sharing and system resilience. The regulator will oversee governance frameworks and hold organisations accountable for any failures to protect client information, secure data silos, maintain operational continuity, and promote Australia’s digital government goals.
Justin Lavadia is a content producer and editor at Public Spectrum with a diverse writing background spanning various niches and formats. With a wealth of experience, he brings clarity and concise communication to digital content. His expertise lies in crafting engaging content and delivering impactful narratives that resonate with readers.
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