Luke Scanlon: More clarity needed on cloud banking

The finance sector needs to take care when navigating the cloud, writes Luke Scanlon. Picture: Bertrand Langlois/AFP/Getty Images
The finance sector needs to take care when navigating the cloud, writes Luke Scanlon. Picture: Bertrand Langlois/AFP/Getty Images
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Royal Bank of Scotland chief executive Ross McEwan earlier this week described RBS as “more a financial services company with good technology” than a traditional bank.

He went on to cite a new technology being piloted by RBS which allows business customers to complete a loan application in 15 minutes compared to the normal two week timeframe. McEwan also revealed that two San Francisco-based employees are tasked with scouting the market to identify technologies which will assist fintech operations.

Banks can help cloud providers understand their regulatory obligations

• READ MORE: 470 jobs at risk as RBS plans closure of 158 branches

Migrating to a new technology is a major challenge for most organisations and this is an area the banking profession is grappling with as it embraces utilising public cloud technology to roll out products and services to customers.

In a traditional non-cloud outsourcing context, detailed provisions are usually written into contracts to govern how arrangements can be terminated, what happens at the point of exit, and how transition to another provider would be enabled. Setting out clearly how these sensitive issues will be governed in an outsourcing contract can help avoid costly disputes.

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In the banking sector, there is an extra emphasis on putting in place sound arrangements. Financial regulations require banks to ensure that they exercise due skill, care and diligence when terminating an outsourcing arrangement, and guidance issued by the Financial Conduct Authority (FCA) sets out more detail of the regulator’s expectations.

Banks must have documented exit and termination plans. They must also require cloud providers to cooperate with them and any new provider, to ensure a smooth transition of services.

• READ MORE: Yvonne Dunn: Helping finance giants navigate the cloud

The banking sector are also required to have contingencies in place to ensure they can continue providing services if a cloud provider fails, and know how they would recover data from a cloud provider’s systems. The rules are ultimately intended to ensure that banks that enter into outsourcing contracts can maintain continuity to their customers. The difficulties in establishing a compliant termination and exit regime in a public cloud context is one of seven issues identified as the main barriers to banks’ adoption of cloud-based services within a report by the British Bankers’ Association, which was produced in partnership with Pinsent Masons.

The Banking on Cloud report suggests cloud providers, whose contracts typically do not deal with issues of exit and transition assistance in any great detail, could look at the detailed terms commonly contained in standard non-cloud outsourcing contracts for examples of the provisions and measures they could put in place to help banks meet their obligations. To be fair, cloud providers have taken steps in other areas to make their terms more attractive to financial services firms, including more favourable provisions for banks in respect of liability. However, they have yet to reconcile their terms with the challenges banks face around their regulatory obligations on termination and exit.

Cloud providers that proactively address this issue and offer more detailed commitments on what assistance they will provide at the point a contract comes to an end or is terminated, including on what steps they will take to smooth transition of services to another provider, stand to gain a competitive advantage.

Banks can help cloud providers understand their regulatory obligations. The banking industry could work together to produce a paper to highlight these issues which, in turn, could provide guidance to cloud providers on the technical steps they could take to help. This might give banks greater comfort that sound exit, termination and transition plans are in place, and help speed up the wider adoption of cloud technology in providing smarter solutions.

Luke Scanlon is head of fintech propositions at legal firm Pinsent Masons

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