Why the cloud? At first glance the advantages to financial institutions are clear: lower costs, faster reactions to competitors and regulators, and improved communication with counterparties, for seamless transaction execution.
Even though the financial services industry has been slow to embrace cloud (mainly due to security concerns), adoption is accelerating. The numbers speak for themselves. Global
business spending for infrastructure and services related to the cloud was $78.2bn in 2011. This year it is expected to grow to $174.2bn, reaching $235.1bn by 2017. In addition, Gartner
believes that over 60 percent of banks worldwide will process the majority of their transactions in the cloud by 2016. So what’s driving the rate of acceptance?
Financial cloud's story, so far, has largely been a one-size-fits-all solution. However, vertical cloud providers (SaaS – software-as-a-service) targeting niche markets are set to grow. Cloud provider Navatar,
for example, services asset managers and investment banks. It also provides wealth managers with CRM solutions from Salesforce, content-sharing data from custodians, portfolio management and
reporting systems—all bundled into one offering. SaaS platforms connecting financial institutions with counterparties, for seamless transaction execution, may also trigger the network effect thus accelerating adoption.
However recent high profile fiascos may have dampened cloud’s reputation. Adobe online login system failed, following a breach in October 2013 when 38 million
accounts were compromised. In January last year, Amazon went offline for an hour, at a cost of $5m in lost revenues. With Google
and the US government accused of sharing data and spying, cloud computing still has some convincing
to do when it comes to safeguarding information. Foreign institutions, in particular, have become more reticent about storing data with US-based cloud providers.
The UK’s FCA (Financial Conduct Authority) is yet to advise how the financial services industry should go about adopting cloud. This contrasts with the US where federal agencies provided guidance two years ago. Could a freshly-defined UK financial services
cloud leverage the technological advantages, whilst minimising risks?
To evolve, small and large cloud providers must, at some stage, learn to work together and focus on their customers. Regulators must allow them freedom to innovate. If the industry and regulators can help cloud providers to overcome security hurdles, adoption
will increase considerably.
But unanswered questions remain: How would the UK cloud model be funded? How would sector-wide adoption be encouraged? What impact could a regulated UK Financial Services cloud have a on foreign banks operating in the UK?
With the right answers (and the right actions), UK banks could drive significant benefits from cloud collaboration. The benefits are evident and were they to be backed up with clear regulatory guidance, the financial services industry, typically a slow adopter
of cloud technologies, could genuinely turn a corner.