Regulation and how financial services can stay compliant

The Financial Conduct Authority (FCA) is setting up an enforcement team to pursue businesses that are not meeting basic regulatory standards as part of a clampdown on what it calls “problem firms” in the financial services industry.

There’s also unease among industry authorities that if any of the major cloud computing firms were to suffer a hack, outage or service interruption, it could seriously impact the financial services, institutions and banking systems that rely on them. In response, the Prudential Regulation Authority (PRA) intends to step up its scrutiny of AWS, Microsoft Azure and Google Cloud, according to a report by the Financial Times.

Last year, the Financial Stability Report by the Financial Policy Committee (FPC), an official committee of the Bank of England, voiced the same concerns about the UK financial system. Its fears centre around operational risks and questions how financial services organisations can comply with regulatory changes while meeting their need for cloud computing.

The risks and rewards of cloud technology

It’s not an exaggeration to say the impact of one of the major cloud services providers being compromised could extend to the wider financial services market and threaten the global economy.

At the same time, with rapid digitisation over the last three years, and ever-evolving UK legislation accelerated by Brexit, it’s understandable why financial services organisations have turned to the advantages offered by cloud providers.

Ensuring financial stability means improving the delivery of compliance – as a key strategic focus for today’s business leaders, we’re already seeing one-third (32%) of decision-makers using data analytics to better their organisation’s approach. As a result, the analytics and data management strategies adopted by financial institutions become another key risk mitigation for consideration.

To manage the growing volume of data received each day, organisations are using hybrid, multi-cloud platforms – which also support a proactive approach to meeting compliance in the face of the ever-changing and complex rules set out by regulators.

In-house data storage diminishes data flexibility and increases operational costs. A cloud-based approach has the benefit of providing data dexterity, especially for traditional banks wanting to keep pace with their neo counterparts – not to mention the cost savings too.

Improving data analytics for financial services organisations often means changing the way banks store and manage data. A hybrid, multi-cloud platform lets businesses manage data across locations – either using on-premises or private cloud – enabling them to react to regulations as they change and optimise operations.

Taking advantage of these benefits means finding a balance between the clear need by the financial services sector for the provision of the technology while addressing industry concerns of cloud services being reliant on a handful of dominant players.

A model for shared responsibility

A shared responsibility model is a cloud security framework. It ensures accountability by dictating the security obligations of a cloud computing provider and its users.

It’s the financial institutions that oversee the storing and processing data. The responsibility of cloud service providers (CSPs) relates to the security actions at the lower rung of the infrastructure. Being accountable for cloud system security and assessing CSP compliance means each financial organisation is responsible for ensuring the security and governance of its cloud deployment. The regulators simply support by determining the rules to help reduce risk.

Addressing many of the concerns from financial institutions and regulators on the dangers of cloud concentration are innovations in comprehensive hybrid, multi-cloud architecture.

The next step in cloud computing

The timing is appropriate. A recent report on building resilience in the cloud by the Association for Financial Markets in Europe (AFME), indicates the financial services industry is heading towards a hybrid, multi-cloud framework – with 63% of the financial organisations surveyed intending to adopt the approach.

Year-on-year open source software network innovation complemented by the widespread adoption of cloud computing, larger volumes of data to manage, heavier workloads, and security requirements across multiple platforms has resulted in a new generation of big data platforms.

Modern hybrid data architecture unlocks the full capability of an organisation’s data. Optimised for a holistic approach, a hybrid and multi-cloud environment means all platforms have the same management capabilities and full portability of data and applications. As such, enterprises can operate more efficiently, better serve customers and address business strategy needs, and have greater security.

The architecture creates a unified interface for data governance that covers the entire hybrid landscape, helping to address cloud-related operational and management risks relating to governance concerns and transparency. With integration across the tech stack simplified, businesses can manage the different security and governance policies for all the technology solutions deployed, removing the vulnerabilities that occur at boundaries.

For banks and financial institutions, streamlining data management, strengthening security measures in relation to compliance, and reducing costs allows enterprises to use the cloud more effectively. It also helps them stay competitive.

It’s by avoiding cloud vendor lock-in that financial services and banks limit the risk of their operations being disrupted by a service hack or outage. In addition to eliminating data silos and boosting security and governance capabilities for all data across the ecosystem, organisations still get to benefit from open source innovation.

Finding a balance through collaboration

Addressing concerns around cloud concentration without losing the benefits that arise from cloud technology innovation requires regulatory bodies and organisations in the financial services industry to collaborate.

The advancement of enterprise data cloud helps bring that equilibrium – giving financial services organisations the means to deliver an agile data strategy capable of responding to industry changes for long-term success.