The Financial Conduct Authority (FCA) recently published its final guidance for financial service firms outsourcing to the ‘cloud’ and other third-party IT services. The direction confirmed that there is ‘no fundamental reason’ why financial services firms cannot use cloud-based services in a manner that is compliant with the FCA’s rules.
[easy-tweet tweet=”There is ‘no fundamental reason’ why financial services firms cannot use cloud services” hashtags=”cloud, tech, IT”]
The regulator’s initial draft of the guidance received a fair amount of criticism from firms, stating that it was high-level and risk-based, and often unclear, which made it difficult for companies to innovate. As such, it is no surprise that organisations and service providers alike have welcomed the revised guidelines.
However, it is not all plain sailing from here. Firms will need to consider their regulatory compliance in consultation with the guidance and look to their IT providers for some assistance before embarking on any cloud outsourcing.
The challenges behind the cloud
Cloud platforms represent a key technological development that has revolutionised the way in which businesses and customers share data. If implemented correctly, cloud-based solutions can transform a firm’s operations, making it agiler and capable of developing services that are tailored to customers’ individual needs.
However, one of the biggest challenges for financial institutions is the need to rely on unwieldy legacy systems. Due to the sheer volume of critical data held in these systems, most banks are often left in a position where they are unable to replace their IT solution with a more up-to-date solution. Fortunately, with the latest cloud and mobile technology, this problem can now be solved.
[easy-tweet tweet=”Traditional banks can now compete with their digitally focused counterparts.” hashtags=”tech, cloud, IT”]
By combining the computing power of legacy systems with the next generation of cloud and mobile technology, traditional banks can now compete with their digitally focused counterparts. By bridging the gap between legacy systems and mobile applications in this way, established players should be able to develop innovative mobile solutions that help to enhance consumer engagement, largely due to developments in cloud computing.
The role of technology in cloud compliance
Despite the many benefits the cloud can offer, many regulated firms have lagged behind when it comes to adopting this technology, fearing that security issues could result in regulatory fines and other penalties. That said, we should expect to see some changes in attitudes towards the cloud now that the FCA has revised its current guidelines. However, these guidelines are only the first step.
To achieve the flexibility, convenience and scalability that the cloud can provide, firms will need to look to their IT providers for some assistance. Complex regulations mean that many companies still do not feel comfortable using this kind of technology. In particular, smaller companies are likely to be unfamiliar with the technology and the compliance requirements, and should, therefore, seek specialist expertise from an experienced advisor in order to gain the greatest benefits from the cloud.
The necessity of tailored solutions
It is tough for off-the-shelf IT solutions to meet all of a regulated firm’s particular FCA requirements, as one size just does not fit all. As such, it is important that companies adopt a tailored, hybrid solution that has been created specifically with their business goals and FCA guidelines in mind, particularly when it comes to cloud-based solutions.
It’s essential that businesses recognise and understand that regulations are put in place to protect consumers and data. For this reason, management and compliance are changing all the time, so unless a business is willing to evolve and overhaul its systems and processes, it will only be spending money on ‘keeping up’, rather than gaining any new benefits.
[easy-tweet tweet=”Financial institutions should be taking advantage of the digital” hashtags=”fintech, cloud, tech”]
The FCA argues that financial institutions should be taking advantage of the digital due diligence tools that are available for this purpose and also work with the Government Digital Service to understand how a secure digital identity could be used in financial services. If firms are willing to focus their efforts in this way, it’s possible that compliance in the cloud will no longer be seen as a barrier when adopting the platform. In fact, if the cloud is adopted effectively, firms should be able to meet their specific business goals while staying compliant with the FCA.
We already see many firms in the industry question the viability of older, more traditional technology systems. Â This nod from the regulator will, therefore, come as a boost for businesses that are looking to gain a competitive edge by accessing the latest digital and mobile platforms via the Cloud.