The Australian PrudentialRegulation Authority (APRA) has released draft standards on managing outsourcing risks.

As outsourcing and offshoring have become more attractive options for companies, some observers believe the risk management of arrangements has been lacking. However, APRA believes its draft standard, which offers a harmonised approach across banking, financial services and insurance, will bring Australia up to international standards.

So far, only the general insurance industry has been consulted on the new standard, but APRA has now opened consultation to all APRA-regulated industries, given that all industries will have to comply simultaneously.

APRA’s new standard will apply to outsourcing of a “material business activity”, which includes internal audit, a function that is frequently outsourced or co-sourced.

Meanwhile, information security is emerging as a major concern associated with outsourcing relationships, according to a major study. Management consultancy Booz Allen Hamilton (BAH) surveyed more than 150 US executives and found that 87 per cent are currently outsourcing functions, or plan to. Half of the respondents to BAH’s study said information security is one of the three most important factors in selecting an outsourcing provider. Business continuity and reputation ranked second and third respectively.

While the US is a global leader in outsourcing, recent high-profile thefts of customer data from outsourced operations have delivered something of a wake up call.

“The outsourcing industry is at a crossroads,” said Booz Allen vice president Vinay Couto. “As security concerns rise, the industry needs to establish security capabilities that restore the trust of outsourcing customers and provide them with the information they need to make good decisions.”

Close to 70 per cent of respondents to the study said they have reviewed their outsourcing strategy following the recent thefts. Moreover, 30 per cent of respondents said security claims from outsourcing firms were impossible to verify, while 20 per cent did not trust the claims.

In many countries in which outsourcing is a growth industry, the legal and regulatory structure needed to shore up outsourcing arrangements is absent, resulting in less trust.

China ranked lowest in terms of regulatory and legal infrastructure.