Financial Services

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

Share this post:

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’:

Managing Editor at The Banker

More Financial Services stories
By Prakash Pattni on 20 April, 2022

Welcoming FLOWX.AI to the IBM Ecosystem

FLOWX.AI will Use the IBM Cloud for Financial Services to Help Customers Accelerate Innovation with Financial Institutions in a Highly Secured Environment A growing portion of the $1 trillion hybrid cloud market opportunity is comprised of the financial markets industry, which is expected to increase nearly twenty percent by 2024. Key findings in a recent […]

Continue reading

By Prakash Pattni on 7 April, 2022

Unlocking the full potential of the fintech revolution

The Innovate Finance Global Summit taking place this week in London brings together a buzzing community of fintechs of all sizes alongside more establish financial institutions and technology companies. Amid the panels and roundtable discussions and other conversations I took part in, it was clear that the pace of change in the industry is undeniable. […]

Continue reading

By KP (Krishnan Padmanabhan) on 10 March, 2022

Unpicking Digital Transformation: 5 themes to leapfrog the competition

We had the privilege of a visit by Suresh Vishwanathan, COO TSB, to IBM’s new offices at Waterloo, London. Suresh, armed with both a wealth of business experience and a deep understanding of technical transformation, has an unparalleled track record as a pioneer of digital reinvention. From his days at Citibank where he pioneered the […]

Continue reading