How to Ensure Compliance and Operational Guide Security in IT Outsourcing 

Bringing in an external IT team is a major decision. You have to ensure smooth transition planning, strong alignment in expectations, and effective remote collaboration. Amidst that flurry of actions, one important aspect may get overlooked: cybersecurity.  

While IT outsourcing isn’t inherently risky, it exposes your business to third-party risks (like any business partnership) — and that calls for a clear risk mitigation plan.  

In this post, you’ll learn about the main compliance and security risks in IT outsourcing and ways to mitigate them before they become operational nuisances. 

Common Security Risks in IT Outsourcing 

IT Outsourcing brings speed, scale, and expertise, but it also expands your attack surface. You’ll need to include your partner in your security perimeter to avoid data leaks, insider threats, compliance violations, and shadow IT.  

Data Breaches and Leaks

Data security is paramount for every business, as losses lead to reputational damage and costly fines. Yet, risks naturally increase with more partners in your IT ecosystem. 

You’ll often need to provide access to internal systems, hosting sensitive data or proprietary business logic. If your vendor lacks strong cybersecurity practices or there’s a vulnerability in the data transfer process, your business may be exposed.   

Last year, 61% of organizations faced a third-party data breach or security incident, up from 49% the year prior. As regulators grow more aggressive, the financial stakes are rising. The average cost of a data breach is now $4.88 million, with finance and healthcare sectors shouldering even higher costs.  

The most common causes of data leaks when outsourcing IT include: 

• Unencrypted data transfers between vendor and client environments 

• Misconfigured cloud storage buckets or file-sharing services 

• Overly broad access permissions for the external workforce 

• Outdated or unsupported software running in offshore environments 

In the MOVEit breach of 2023, hackers exploited a vulnerability in a popular file transfer tool used by thousands of managed service providers, ultimately compromising 66.4 million individuals’ data. Dubbed a “global privacy disaster,” this hack illustrates how breaches in the IT vendor chain can ripple across markets. 

The lesson? Even with the best internal security posture, your data is only as safe as the weakest link in your supply chain. 

Shadow IT  

Shadow IT — unmonitored or unauthorized use of third-party software — doesn’t start with bad intentions. It often starts with an impatient employee, a sluggish helpdesk, and a productivity tool that solves a problem faster than corporate IT. But using unapproved apps, cloud services, or AI tools can quickly become a security liability. 

Corporate data input into AI tools like ChatGPT surged 485% from March 2023 to March 2024. Input data included confidential customer details, source code, proprietary R&D materials, HR records, and financial documents — all of which can get companies in regulatory trouble. 

Shadow IT is dangerous in outsourced environments, where organizations have limited visibility into external teams’ tool usage. Lack of security monitoring makes detection harder. Without strict governance, remote developers or contractors can bypass official tools and create their own environments, taking sensitive data outside your company’s secure perimeter. 

One risk mitigation strategy is to provide external vendors with pre-configured IDEs or virtual desktops based on your security policies. This way, you retain control over tools, permissions, and data access without sacrificing the productivity of third-party managed IT teams.  

Compliance Violations  

Your compliance liabilities extend over external teams. If your vendor breaks the rules, you will be held liable. 

In 2025, the regulatory landscape got harsher, with more scrutiny over data handling, IT systems resilience, and third-party governance. In the US, the DOJ issued new guidance on international data transfer restrictions, while California, Colorado, and Virginia enacted stricter data privacy laws. Meanwhile, in the EU, the Cyber Resilience Act and the AI Act introduced new security and transparency requirements for digital products and AI systems. 

IT outsourcing can result in these compliance violations: 

• Even if the vendor mishandles personal data, your organization will be fined under GDPR. 

• A third-party AI tool used without proper documentation can breach the AI Act. 

• Failing to conduct due diligence on a managed cloud services provider results in HIPAA violations. 

Case in point: In 2018, TSB Bank’s IT migration failure locked customers out of their accounts for days. Regulators slammed the bank for poor outsourcing governance and imposed a £48.65 million fine. The incident served as a cautionary tale: even when the technical work is outsourced, the operational and compliance risk stays in-house. 

Insider Threats

Not all cyber threats come from outside the firewall. Sometimes, the risk is inside your vendor’s office. In outsourced IT partnerships, insider threats are the hardest to detect and the most damaging. 

Whether malicious intent or careless behavior, outsourced personnel can compromise sensitive systems unknowingly. Think: misconfigured databases, weak password policies, excessive access privileges, or unauthorized file sharing. When they act deliberately, tracing accountability across borders and providers is much harder. 

In 2019, Capital One suffered a data breach when a former cloud service provider employee exploited misconfigured firewall settings. The attacker accessed credit card applications, social security numbers, and bank account details of over 100 million individuals. Capital One bore the fallout despite the breach originating from a third-party environment. 

To prevent insider threats, companies must maintain strict access controls, 24/7 activity monitoring and anomaly detection, and clearly defined provider onboarding/offboarding. Limit access to what’s absolutely necessary — least privilege should be the default.  

Service Level Agreement (SLA) Gaps 

All managed services agreements include SLAs — clauses outlining the expected service level, performance metrics, and responsibilities. But sometimes, SLAs can be vague, incomplete, or misaligned with business needs, resulting in accountability gaps. 

SLAs often fail to establish clear roles in shared responsibility models. Who’s responsible for ensuring proper infrastructure security configurations? What if critical systems go offline during peak hours? If your SLA doesn’t spell it out, you may find yourself in a finger-pointing game with the vendor. 

BNY Mellon Fund Services was fined €10.8 million by the Central Bank of Ireland for failing to implement proper outsourcing governance. The global FI inadequately identified and managed risks across that relationship. 

Strong SLA clauses should include clear metrics, security expectations, escalation paths, and auditing rights. They should evolve with the regulatory environment. Otherwise, they risk becoming outdated documents only opened when something’s already gone wrong. 

Compliance Challenges in IT Outsourcing 

Compliance becomes harder with more hands on your systems, data, or processes. Especially if the selected vendor(s) operate in other jurisdictions or under different standards. Here are important caveats about IT outsourcing compliance. 

Data Residency and Sovereignty 

Outsourcing IT operations complicates compliance as your data crosses legal borders. It may end up in the vendor’s data centers in different countries, each with its own privacy laws. 

This creates a patchwork of legal obligations with frameworks like GDPR, HIPAA, CCPA, or the new DOJ's Rule on International Data Transfers. Retention period and access rights may differ by county. If you don't know where your data resides or how it's handled, you're out of compliance. 

Moreover, data protection laws are evolving. The EU increased the extraterritorial GDPR enforcement scope. Data sourcing and processing requirements for AI systems are becoming stricter. So, it’s essential to maintain real-time data visibility and governance and create vendor agreements that include location-specific compliance guarantees. 

Inconsistent Regulatory Alignment 

Not all vendors comply with sector-specific regulations (e.g., ISO 27001, SOC 2, PCI DSS). They may follow less rigorous standards, which can become a liability for your business. For example, not all cloud service providers are HIPAA-compliant by default, or a payment service may lack compliance in certain jurisdictions. 

To avoid unsavory surprises, evaluate vendors on their ability to meet your technical and regulatory requirements across markets. Compliance is a shared responsibility, but without alignment, the burden ends up on you. 

Limited Auditability 

IT services delivery models differ in auditability risks. Some managed IT services providers use their own toolchain, reducing your visibility and control over daily operations. For example, you may lack access to raw backend logs or intel from proprietary monitoring systems, making it harder to verify vendor compliance or investigate incidents. 

To minimize auditability risks, negotiate access and reporting rights upfront. Another good practice is to conduct regular vendor security reviews to ensure that pre-agreed safeguards remain in place. 

Delayed Breach Notifications 

Data privacy laws require companies to notify authorities and affected users within strict timeframes. But when the breach happens at the vendor’s end (and remains undetected or concealed), a lot of time can elapse.  

Without real-time incident reporting clauses in the outsourcing services agreement, breaches can go unreported for weeks, leaving you vulnerable to legal exposure. This year, Infosys had to settle a lawsuit following a cyberattack on its subsidiary, Infosys McCamish Systems, where hackers accessed and exfiltrated sensitive customer data. The incident raised questions about the company’s breach detection and disclosure timelines. 

To mitigate such risks, breach notification protocols should be spelled out in SLAs. Define acceptable notification windows, outline escalation procedures, and establish terms for proper root cause investigations. 

Best Practices for Securing IT Outsourcing Partnerships 

IT outsourcing doesn’t translate to higher security risks — poor partner management and lack of technical safeguards do. Otherwise, there wouldn’t be a $32.8 billion market of Managed Security Service Providers (MSSPs). 

External partners can actually strengthen your cybersecurity posture and improve delivery capabilities if you apply the following best practices. 

Conduct Vendor Due Diligence  

Vendor evaluation is crucial in IT outsourcing. Besides assessing the partner’s capabilities and reputation, focus on their cybersecurity approach. About 75% of third-party breaches target software and IT supply chains, not the businesses. This means your vendor’s cybersecurity posture is just as important as your own. 

Here’s what thorough vendor vetting should include: 

• Security certifications review. Prioritize companies that use recognized frameworks like ISO 27001, SOC 2, or NIST as their baseline for information security.  

• Regulatory alignment. Verify the vendor’s compliance with applicable data privacy and cybersecurity regulations in markets where you operate.  

• Risk assessment. Request their latest third-party security assessments, pen test results, and incident response plans to have hard data for decision-making.  

• Data handling policies. Ask how they store, process, and exchange sensitive data. Confirm the location of the company's data centers and the security controls in place.  

• Subcontractor transparency. Ask the vendor to disclose any fourth-party relationships and extend security obligations across the chain. 

Finally, check their public track record. Did the company suffer any breaches? If so, how was the situation handled? Look for evidence of transparency and professional handling of the situation.  

Create Air-Tight Contracts  

Your outsourcing contract should extend beyond the standard scope-of-work document. It should also establish a shared security and governance framework, defining each side’s responsibilities. When writing a software development contract, include the following sections: 

Service Level Agreements (SLAs) 

Your SLA should go beyond uptime or service level guarantees. Include clauses about:  

• Data security protocols (e.g, usage of specific encryption standards or secure coding practices)  

• Incident response plans (e.g, first notification within 24 hours, joint incident investigation by SOC team) 

• Compliance requirements (e.g, operations in compliance with GDPR, HIPAA, or sector-specific mandates) 

• Audit and access rights (e.g., quarterly  SOC 2 Type II reports, access to system logs for specific infrastructure)  

• Penalties for non-compliance (e.g., service fee reductions, reimbursement of regulatory fees)  

These extra SLA clauses ensure you can verify, not just assume, that your vendor is meeting their security obligations. 

Non-Disclosure Agreements (NDAs) 

NDAs are standard in IT outsourcing agreements. Besides protecting trade secrets and non-public information, they should also cover: 

• Confidentiality of all technical data like system architecture, security configurations, or access management policies  

• Tighter clauses and penalties over mishandling personally identifiable information (PII) to meet regulatory obligations  

• Any necessary restrictions on data storage, reuse, or analytics beyond the authorized use cases 

• Breach consequences, including immediate termination or legal action.

Security and Privacy Addendums 

Use contract addendums to specify extra security requirements and obligations, such as: 

• Data residency, i.e., restrictions on where it can be stored and how it can be processed  

• Least privilege principles to minimize data exposure and have tiger control over access rights  

• Encryption standards to enforce usage of  industry-approved protocols like AES-256 or TLS 1.3 

• Data retention and deletion policies, establishing the maximum period for holding your data after contract termination.

Implement Effective IAM Policies  

Most security breaches occur through access points: poorly-protected use accounts, weak passwords, or unnecessary “permission creep” for regular accounts. These risks increase with the number of people in your ecosystem. Among UK businesses, half have experienced a breach or a cyber attack due to third-party access to their networks. 

That’s exactly what happened to a London-based outsourcing company, Capita, in 2023. The company left about 655GB of sensitive data (corporate system logins, employee and customer PII) in an unprotected AWS storage bucket.  Needless to say, it was a disaster.  

Effective identity and access management (IAM) policies must be in place, regardless of using external teams. IAM ensures only the right people access the right systems at the right time and for the right reasons. They reduce your attack surface, limit insider threats, and enforce better accountability among vendors. 

As part of new vendor onboarding, make sure you use:  

• Role-based access controls (RBAC).  Provide new users with the minimal levels of required access, limited to their role description. Consider separating environments — production vs testing, sandbox — and limit cross-access. Review permission policies quarterly to avoid privilege creep and automatically revoke access for all offboarded vendor staff.  

• Zero Trust principles. Build your IAM policy on the premise that no internal user or device is “safe” by default. Codify multi-factor authentication (MFA) for all remote or privileged access. Set up user behavior analytics (UAB) and automatic alerts to flag suspicious behaviors in real time.  

• Centralized identity platforms. Single Sign-On (SSO) or identity federation tools centralize and streamline third-party access management. You can eliminate friction without increasing security exposure. Many also auto-log access attempts and save detailed audit trails for compliance.  

Our cybersecurity team has recently helped a security software vendor implement an air-tight digital identity management system. We applied security best practices across the company’s cloud estate to improve monitoring of AWS instances, in-cloud networking, and user activity. We also optimized the Personal Identification performance to comply with regulatory procedures in different markets. 

Establish Continuous Security Monitoring 

Like IAM, security monitoring is indispensable, and scans should cover your and your vendors’ infrastructure and tooling. Without a security information and event management (SIEM) tool, you’re operating in the blind. Critical vulnerabilities like unpatched systems, configuration drift, or weak access policies can remain undetected and lead to a breach. 

To stay safe, consider building a protective layer with the following components: 

• Centralized logging and SIEM tools. Collect logs from both internal and vendor-operated systems into one platform, like Microsoft Sentinel or Splunk Enterprise Security. Both solutions rely on state-of-the-art machine learning algorithms to flag suspicious activity with high precision.  

• Security orchestration, automation, and response (SOAR) solution. To speed up incident investigation and response, add a SOAR solution like Splunk SOAR or IBM Security QRadar. SOAR platforms automate simple incident workflows, facilitate alert investigations, and provide data for regulatory tracking. 

• Third-party risk monitoring tools. Specialized Cloud Security Posture Management (CSPM) and SaaS Security Posture Management (SSPM) tools can help you extend security visibility into third-party PaaS and SaaS environments.  

Lastly, set alert thresholds and define escalation paths in the collaboration agreement. Both sides should understand who needs to go into high alert mode when a possible threat emerges. 

As part of our engagement with a global travel platform, Svitla Systems set up a dedicated SOC team for the client to handle 24/7 security monitoring and L3 support. We’ve developed a custom security analytics tool to consolidate telemetry data from different sources and mine better insights for incident investigation. 

Offer Cyber-Training to All Employees  

The best cybersecurity setup won’t keep you safe if your people aren’t following the protocol. The “human factor” remains the top reason for security incidents. This isn’t surprising, given that only 24% of organizations run ongoing cybersecurity programs. 

Your security posture is only as strong as the least-informed person in your extended team. Cybersecurity training must cover everyone in your organization — from the C-suite to customer support representatives and external collaborators. 

Everyone (and we mean everyone) in your company must know: 

• What sensitive data looks like and how to handle it according to security and compliance policies  

• How to use approved communication and collaboration platforms to exchange data with others  

• How to spot red flags like social engineering or misconfigured systems and to whom report the findings 

• How to not fall prey to phishing or social engineering attempts online and in real life  

All of this training isn't just a one-time box to check — it should be a continuous practice in your organization. As the threat landscape evolves, you need to update your materials and simulate new attack scenarios (e.g., AI-enabled phishing attacks) to keep your people up to speed.  

Conclusion  

Just like in any other type of partnership, IT outsourcing risks depend on your ability to properly map and manage them through the engagement. Clear responsibility boundaries, compliance with regulations, and established best practices, paired with a modern cybersecurity tech stack, are “cornerstones” of every arrangement.  

If you’re already in the market for a reliable IT services partner, Svitla Systems should hit all of your due diligence boxes. We have ample experience in building HIPAA-compliant software, partnering with financial companies, and offering managed cybersecurity services. Reach out to learn more about our capabilities and security credentials.