Managing Regulations and Risk in Financial Services: Exploring the benefits of a hybrid cloud environment

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Managing Regulations and Risk in Financial Services: Exploring the benefits of a hybrid cloud environment.

Banks have ramped up adoption of cloud technology in the past few years, fuelled by greater understanding of the technology and changing regulations in many jurisdictions, as well as its deployment by the challenger banks, which has proved in practice the benefits not just in terms of cost but also agility. The incumbent banks that are making the transition from legacy systems to cloud can already see benefits in terms of efficiency, operational resiliency, and talent attraction and retention.

While many of the concerns around cloud, such as security and vendor lock-in, have been addressed to some degree (though still open to debate), the journey to cloud is far from complete, with only a fraction of the workloads in the cloud today. Many banks have made a wholesale shift of some systems, such as customer relationship platforms, open banking platforms and productivity tools, to cloud, but are taking a slower, more measured approach to other systems, especially critical systems that house customer data. To progress that journey, one panellist talked about defining the difference between confidential and highly confidential data, to understand what enhanced security measures or controls will be needed.

What is clear is that the journey to cloud is getting closer to the system of record – however the banking industry is not quite there yet. Therefore, the concept of hybrid cloud – where some systems are hosted in a public cloud and others remain on-premise – is gaining traction. A multi-cloud approach is also a common approach to avoid vendor lock-in and potential concentration risk issues, an issue which the regulators are focused on. One panellist likened the multi-cloud approach to having a good prenuptial agreement that provides an exit strategy if the bank decides to leave the cloud provider.

Having control over costs associated with cloud is of paramount importance when assessing the overall business value. In the long run, a cloud-based infrastructure should reduce costs, however running two infrastructures at once during the transition phase does incur higher costs at the outset.

Additionally, costs shift from capital expenditure to operational expenditure, based on consumption of cloud services, which can be quite intricate to understand. Therefore, a new discipline has emerged called FinOps, which combines financial judgement with engineering know-how to provide a deep understanding of how to use those services, as well as continuously monitoring activity to detect anomalies early so that a bank doesn’t see a spike in consumption and therefore costs. But it takes time to develop that “muscle”.

The regulatory environment is also a hot topic, as banks are systemically important and regulators need to ensure the stability of the system as a whole. Therefore supervisors want to have oversight into the banks’ journey to cloud. Importantly, the regulators have been educating themselves about the technology and also actively engaging with the cloud providers to get the right model for the financial services industry that will also drive innovation.

Looking to the future, after cloud comes edge computing, which is now being adopted by the cloud service providers because they see it as a natural extension. Edge computing is where applications, and even personal data, can reside in devices instead of being hosted on-premise or by a cloud service provider. This is an exciting and developing space which opens up new possibilities for hyper-personalisation, especially when combined with the roll out of 5G connectivity.

The webinar is no longer available, however learn more from speaker Bharat Bhushan in this video series ‘IBM Cloud for Financial Services – What Does It Mean for You’: https://www.ibm.com/account/reg/uk-en/signup?formid=urx-49793