The Time for Cloud in Financial Services

Digital transformation of financial services is well underway, driving the demand for new and innovative solutions such as blockchain and artificial intelligence. These technologies require an ever-increasing set of computational power, storage, and analysis that can be seamlessly provisioned by the cloud.

Financial services firms around the globe are being forced to change their business models and rethink their approach to cloud due to shifting regulatory views, new techniques in machine learning and digital ledger technologies requiring increased computing power, and a constant pressure to reduce infrastructure costs.

One of the greatest barriers to cloud adoption in financial services historically has been regulation. However, regulators now have shown an openness to accepting cloud-based infrastructure models.

The FCA (Financial Conduct Authority) recently provided specific guidance for firms on the use of cloud to prove control and employ the right risk protections. And regulations such as GDPR (the General Data Protection Regulation) have established a clear framework for data privacy and protection, even when in the cloud, and are becoming more progressive amid widespread technological adoption and digital transformation happening rapidly across the industry.

With increased support and encouragement toward innovation and technological adoption with sandboxes being set up, paired with the proper regulatory guidance and governance structure, this barrier can now be overcome. In fact, the technological landscape has now arguably overtaken the financial landscape, with the key driver being financial firms adopting new technologies to address regulatory roadblocks.

This also opens the door to an exciting wave of new innovations that require the cloud in order to flourish, as cloud computing serves as an extremely tangible example that is relatively easy to adopt given the immense value it could provide. Digital transformation for financial services has been well underway for a majority of banks, driving the demand for new and innovative solutions such as blockchain and artificial intelligence.

These technologies require an ever-increasing set of computational power, storage, and analysis that can be seamlessly provisioned by the cloud. Big data analysis to power artificial intelligence models and data lakes bringing in IoT (Internet of Things) data will all require cloud computing to handle these large data volumes and bring value to the business.

Buy-side firms have seen value in this approach already with niche private cloud providers coming in to allow higher security computing models for hedge funds with large data volumes is feeding complex models. However, most sell-side firms have yet to make significant progress in their larger vision for the cloud.

Which brings us to the topic of legacy infrastructure modernisation. This is still a key focus area for banks that are looking to lower their operating expenses and make their infrastructure more scalable to client demand. While some financial services firms have been phasing in cloud for non-client-facing, non-core functions first, such as HR databases, for example, data coming from financial institutions belonging to banking clients and restricted economic data is an entirely different matter.

In the past, software would be purchased, and would have to be loaded onto the server and data center, which would take months to do. Today, banks are embracing the cloud and joining together to set up shared utilities as a cloud service with almost instant commissioning times, massive scalability, and utilization-based costing. Dynamic bank data and provision of services (some being multi-bank, multitenant) across externally hosted cloud platforms looks to be the future.

But there is still a long way to go from core infrastructure and client-facing business applications running in the cloud. This is where banks are now focusing their cloud strategies. They are establishing cloud governance and control best practices that lay the foundation for larger, long-term infrastructure modernization that they perhaps test in shorter-term innovation POC (proof of concept) work to help advance all three initiatives:

  • Cloud regulation and governance strategy
  • Cloud-supported innovation
  • Long-term infrastructure modernisation

While banks are at a certain disadvantage to other markets given the complex global regulatory landscape, no other industry has the capability for technological change at this large a scale. Cloud can streamline business processes and operations when it is utilised to its fullest potential, requiring firms to analyse it from a business standpoint and technology standpoint, and a deep understanding of digital transformation.

This requires aligning the cloud strategy with appropriate business drivers and recognising initiative objectives to make the transformative technology a core component of a larger business transformation project. Once objectives and scope are fully formed, the technology components of the solution need to be defined so the ecosystem can be set up.

While there will be multiple business drivers that will require cloud adoption, whether cloud is a solution to an initiative or the initiative itself, it is critical to approach adoption strategically and develop an enterprise view. By approaching the initiative going through the above steps, firms can start their cloud process off on the right foot.

The article was first published on TabbFORUM.

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