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Cyber and Information Security: A Must-Have for AFSL Holders and Their Authorised Representatives

Updated: Nov 3, 2023


Dive into the crucial intersection of Australia's Financial Services and cyber security.

Discover why AFSL holders and their Authorised Representatives must prioritize digital protection, and how it shapes trust in our financial landscape.


Introduction

In the evolving regulatory landscape of the Australian Financial Services industry, the importance of cyber and information security cannot be overstated. For holders of an Australian Financial Services License (AFSL) and their corporate authorised representatives, this is not just a matter of best practice — it's a legal and regulatory obligation.


Efficient, Fair, and Honest Services: A Core Principle

At the heart of the Corporations Act and Financial Services companies lies a foundational principle: AFSL holders and their Authorised Representatives must provide services that are efficient, fair, and honest. This is not merely a lofty ideal; it's an expectation that shapes the way financial services should be delivered in Australia.


But what does this mean in the context of the increased digitalisation of financial services, both traditional and FinTech? With the increasing reliance on technology to deliver financial services, ensuring the integrity, confidentiality, and availability of client data becomes paramount. This is where the mandate for adequate technological and risk management comes into play.


The Dual Responsibility: AFSL Holders and Authorised Reps

Both AFSL holders and their Authorised Representatives share the responsibility of upholding these standards. While the Corporations Act explicitly places this obligation on AFSL holders, Authorised Representatives are equally bound by the Act, regulatory statements from the Australian Securities and Investments Commission (ASIC), and their contractual obligations to their AFSL holder.


The Imperative of Cyber and Information Security Risk Frameworks

To truly meet the obligations set out in the Corporations Act and the expectations of ASIC, AFSL holders and Authorised Reps must go beyond mere compliance. Implementing a best practice cyber and information security risk framework is essential.


Such a cyber and information security risk governance framework should:

  • Identify Potential Threats: A gap analysis and creation of a risk registry to recognise the various cyber threats and vulnerabilities that could compromise the integrity of your ability to deliver financial services.

  • Implement Protective Measures: Deploy technological solutions, processes, and policies that guard against these threats, from firewalls and encryption to regular security audits.

  • Detect Breaches: Have systems in place that can quickly detect any security breaches or data compromises.

  • Respond Effectively: In the event of a breach, have a clear plan to mitigate the damage, notify affected parties, and restore services.

  • Recover and Learn: Have the necessary corporate governance to, analyse, learn from breaches, continually test resilience, and refine the security measures to prevent future occurrences and keep up with best practices.


The Oversight Role of the AFSL Holder

While Authorised Representatives have a clear duty to uphold cyber and information security standards, AFSL holders have an additional layer of responsibility. They must actively oversee the cyber and information security risk governance frameworks of their authorised reps. This oversight ensures that the framework is not only in place but is also fit for purpose, effectively mitigating the unique risks each representative might face.


This oversight role is crucial for several reasons:

  • Consistency: It ensures a uniform standard of cyber and information security across all Authorised Representatives.

  • Accountability: It establishes a clear chain of responsibility, ensuring that any lapses in security can be quickly identified and addressed.

  • Trust: By actively overseeing and ensuring the robustness of security measures, AFSL holders can bolster the trust clients place in the financial services industry.

Conclusion

In today's digital age, where cyber and information threats are ever-present and evolving, the Australian Financial Services industry must be proactive. For AFSL holders and their Authorised Representatives, this means not only understanding the obligations set out in the Corporations Act and by ASIC but also going a step further. Implementing and overseeing a robust cyber and information security risk governance framework is not just about compliance—it's about safeguarding the trust and confidence of clients and ensuring the ongoing integrity of the financial services industry in Australia.


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