Financial services regulators’ key role in increasing Cloud adoption

By Gaia Lamperti

Cloud computing is becoming a key point of leverage for financial firms looking to improve performance across a broad range of activities, including but not limited to operational resiliency, staff productivity, regulatory compliance, and business model innovation.

A vast majority of financial companies are already using the Cloud to enhance their services, around 83% of them deploy it as part of their primary computing infrastructures, a Google Cloud survey found. Of those using the technology, the most popular architecture of choice is Hybrid Cloud (38%), followed by Single Cloud (28%), and Multicloud (17%).

The study, conducted in 2020-2021, surveyed 1,363 senior executives in the FSI across Europe, the US, Canada, Asia, and Australia. The data were weighted by the number of employees to bring them into line with the actual company size proportions. Financial services institutions in North America are leading in technology adoption, with institutions in the U.S. (54%) and Canada (52%) paving the way.

Zac Maufe, Managing Director at Google Cloud, Financial Services, commented: “Financial services firms should continue to maximize the potential of technology by migrating more core workloads to the Cloud, as well as actively considering Multicloud and Hybrid Cloud strategies. Such strategies enhance the resiliency of existing IT infrastructure and reduce concerns over vendor lock-in.”

As financial companies embrace the Cloud, more core functionalities will be migrated, with data and IT security (74%), regulatory reporting (57%), and fraud detection and prevention (57%) ranking the highest in workload adoption, the study found. When it comes to core underwriting activity and back-office workloads instead, the industry is far from full adoption.

Nearly all respondents agreed that Cloud adoption is improving their performance, particularly in these areas:

• adapt to changing customer behaviours and expectations
• enhance operational resilience
• support the creation of innovative new products and services
• enhance financial services institutions’ data security capabilities
• better connect siloed legacy software infrastructure within financial services institutions

“In the past few years, many regulators across the globe have taken a robust approach to rationalising rules and guidance to Cloud adoption in the financial sector, which has helped significantly stimulate adoption. But further assurances and harmonization of best practices around supervision are needed to advance risk-based and secure digital innovation,” said Maufe.

In fact, the complexity of legacy systems, regulatory uncertainty, and fragmentation of compliance requirements are preventing more robust adoption, especially around core back-office functions. Most survey respondents (78%) said that regulatory uncertainty prevents their organizations from adopting Cloud technologies that would otherwise provide benefit to them.

In this landscape, regulators become key in facilitating the process through regulatory harmonisation and streamlining. Financial regulators’ guidance would help align regulatory reviews across agencies to avoid fragmentation; develop regulatory “safe harbours” based on accepted standards and best practices; train regulatory staff on emerging tech; and advancing data reporting requirements via Cloud and related technologies.

“While many banks have already deployed hybrid Cloud environments, others are still in various stages of planning and deploying,” said Jerry Silva, Research Vice President for IDC Financial Insights. “Clearly, hybrid infrastructure is a reality, and financial institutions must focus not only on leveraging the modern infrastructure model to gain efficiencies, resilience and agility but also on taking the necessary steps to manage such environments, including the security and compliance of Cloud services.”

Key findings from the survey:

• Firms that have adopted public Cloud as part of Hybrid or Multicloud approaches report higher technology satisfaction levels than firms using on-premises computing infrastructure
• 83% of surveyed financial services companies report they are deploying Cloud technology as part of their primary computing infrastructure
• On average, only about half of all workloads have been transitioned, meaning that there is still work to be done
• Regulatory uncertainty and the high cost of the regulatory approval process are the top two obstacles to continued adoption