Adopt a hybrid multi-cloud strategy to avoid systemic risk in banking & financial industry

By Vijeth Shivappa

A recent worldwide survey on public cloud computing adoption strategy in Banking and financial vertical has revealed that Banks and regulators are concerned on the growing dependencies on the highly concentrated public cloud service operators. The survey conducted on more than 1000 leading Banking and financial services providers & regulators in France, UK Germany, US, Canada, Hong Kong, Japan, Singapore and Australia showed that little more than 80% are using the public cloud computing infrastructure for some or the other key applications .

Regulators are concerned that over dependency of many banks on the same cloud operators can lead to systemic risk if one of the cloud operators were to go down for some or other reasons. The prominent banks in the European region have expressed concerns about their lack of transparency in how banks rely on a “concentrated” number of outside cloud computing providers which are beyond the reach of the regulators in their Region.

To mitigate that systemic risk the Banking & Financial institutions are considering hybrid & multi-cloud strategy to avoid vendor lock-in . In fact over 80% of these financial institutions are considering a multi-cloud & hybrid cloud strategy within next 1 year of time frame itself . This will not only solve public cloud provider concentration issue but also vendor lock-in concerns of financial institutions & regulators. It provides these critical financial institutions, the much needed flexibility to switch to alternate public cloud operator in case of an outage to avoid any interruptions in the services.By using hybrid cloud, banks are able to maintain and support their legacy systems while simultaneously taking advantage of cloud technology.

A Hybrid Multi-cloud approach

The financial institutions and regulators need to ensure controls and assurances on cyber resilience, risk management, transparency, data locality and compliance.Banks & Financial institutions are adopting hybrid cloud strategy for multiple use cases:

Manage ever growing data: Banks and financial institutions have huge volumes of big data. With hybrid cloud, banks can store sensitive data on-premises and move all the other data that has a lower risk in terms of security to the public cloud. This will reduce the cost and complexity of storing huge amounts of data in on-premises data centers.

Data analytics & Reporting: Banks move to hybrid cloud as cloud computing offers Machine learning & Artificial intelligence capabilities that provide insights into customer behavior, product efficiency, cross-selling and upselling opportunities.

Information Security: With the help of hybrid cloud, banks can ensure disaster recovery. Financial institutions can keep their production environment in a private cloud and a recovery environment in a public cloud, ready to spin up as and when required. In the event of a disaster, they can quickly start the application in the public cloud, since the data is already present there. Also, hybrid cloud architecture can be used for business process automation (RPA) in client servicing (account payables , KYC etc ) and various other reporting automation.

DevOps: With hybrid cloud, banks can leverage Kubernetes services, microservices architecture, and various testing solutions that are used for effective development and testing ( CI/CD pipeline ) of web and mobile fintech applications.

Regulatory compliance: Hybrid cloud helps banks & financial institutions comply to changing regulatory reporting requirements (e.g. Capital Analysis and Review, Solvency II) in multiple operating jurisdictions. Cloud-based solutions can help banking & financial institutions conduct intraday liquidity and risk calculations, and mine trade surveillance data to detect anti-money laundering and other fraud issues.

Migrating workloads to and from the cloud: Moving to the cloud or back to on-premises is not a one-day task. So financial institutions and banks can use hybrid cloud to check the optimal services and resources for workloads by migrating applications to and from the cloud.

It is clear that additional policy measures are needed to mitigate financial stability risks emanating from the highly concentrated public cloud operators.The regulators across world need to take further actions to avoid Banks & Financial institutions reliance on a very few public cloud operators becoming a threat to the financial stability in their respective region.The right cloud strategy fine tuned for specific business needs to be deployed in the locations right for their business, while incorporating new industry-specific capabilities.

‐– All views expressed are personal