Are Financial Services Ready for the Cloud?

At a Glance

  • Security, regulatory compliance are top concerns for financial firms
  • 78 percent of UK financial firms are using the cloud

With its ability to reduce costs and increase time-to-market, the cloud would seem all things to all people.

Provisioning new infrastructure, which traditionally has been a months-long process, is now reduced to just a few minutes.

“This transformation is being described by many as the fourth industrial revolution,” Scott Mullins, Head of Worldwide Financial Services Business Development, Amazon Web Services told Tech Talk 5.0 in London recently. “The world doesn’t work the same way anymore, which means that legacy methods for procuring and deploying technology don’t either.”

From mining big data to mobile data, from risk analysis to the derivatives trade, the cloud is transforming financial platforms.

“Our financial services customers tell us they are migrating to AWS for two primary reasons,” Mullins says. “First, it’s about gaining agility by outsourcing undifferentiated IT heavy lifting to the cloud, which then allows them to focus on their business differentiators, rather than on managing a technology stack.

“Secondly, it’s about the bottom line.  Rising costs due to increased compliance obligations coupled with flat or declining revenues has large financial institutions focusing on the economics of moving to the cloud.”

The rate of pick up is accelerating and regulatory bodies are seeing a cloud-based future.

Watch: The cloud discussion from Tech Talk 5.0

A recent announcement by the UK’s Financial Conduct Authority (FCA) has paved the way for banks, insurers and other financial service providers to take advantage of the cloud.

“(There is) no fundamental reason why cloud services (including public cloud services) cannot be implemented, with appropriate consideration, in a manner that complies with our rules,” the regulator wrote.

The UK’s Cloud Industry Forum, which represents 45 organizations from large vendors such as Microsoft, Cisco and Dell down to smaller operators, annually surveys 250 companies in the UK to gauge the cloud landscape.

“The highlight to take away from this year’s survey is that 78 percent of organizations are using the cloud,” says CEO Alex Hilton. “About 75 percent of those are planning to increase the deployment over the year ahead.”

The survey also showed that organizations were using the cloud for a wider variety of tasks, a clear indicator of increased confidence.

Hilton said statistics on the hybrid cloud – a cloud-computing environment that uses a mix of on-premise and third-party cloud services – were particularly revealing in showing the future direction of cloud services.

A year ago, the Cloud Industry Forum survey revealed that 55 percent of organizations were planning to run their IT on a hybrid cloud basis. In the most recent survey, the number had reduced to 37 percent.

“The point here is that there’s a plan for the adoption of cloud-only technology. The desire of organizations to move to a cloud-only IT environment is quite apparent,” says Hilton.

While financial services run the risk of running into regulatory issues – in particular problems surrounding extraterritoriality – and management may be mired in legacy integration challenges, the position among many UK firms was aspirational, according to Hilton.


The number one question

The cloud may be eating into the large capital expenditure budgets that firms once set aside for IT, but security still remains one of the biggest inhibitors to adoption.

Mullins told Tech Talk that security was the number one topic mentioned by potential customers when making inquiries about the cloud. In many cases, he says, the problems were often ones of perception.

“If you are a business owner responsible for signing off on risk, you might have open questions on whether or not using the cloud is secure.

“But if you’re the IT security team, third-party oversight team, or  internal audit team at the same firm, you are likely more assured about the cloud’s ability to help you meet your security obligations based on these teams’ understanding of the AWS Cloud security model,” says Mullins.

Mullins also sees these types of questions he gets evolving quickly.

“Regulatory compliance continues to be a key topic of conversation, but increasingly we are being asked by customers ‘where do we find the right people to help us do this?’ The demand for cloud skillsets in the market today is increasing exponentially.”

Fears too over the impact on reputation from a security breach or the loss of direct control over IT and even caution from regulators over where the data is actually stored have sometimes been deal-breakers for potential customers.

The Cloud Industry Forum asks respondents directly about security breaches and Hilton says that firm evidence of real security lapses are often hard to find.

“The number tends to be very small – often about 1-2 percent,” he says.  “More often than not you find that the technology is more robust.”


Data crossing jurisdictions

Beyond technology problems, compliance remains a challenge.

Craig Mohan, managing Director, Market Technology & Data Services at CME Group, told the Tech Talk conference that the industry needs to be vigilant as data crosses jurisdictions.

“What are the privacy rules? Does it differ by state, by country, by region? What are we permitted to do with that data? These are challenges that we have to address that we didn’t have to address before.

Ultimately, however, the cloud, more than any other technology, stands in the best place to solve the very problems it has created.

“The move to the cloud has actually made the cloud a very good source of compliance help,” Steve Holden, CTO, BMLL Technologies told Tech Talk. “The location of data is going to be the most important aspect of compliance that we will have to struggle with over the next five years.”

Peter Shadbolt is a writer based in London.

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