Financial services have their head in the cloud - Yvonne Dunn

It is five years since Pinsent Masons collaborated with UK Finance on a study that highlighted the challenges banks faced when moving to the cloud.

Yvonne Dunn

The challenges identified in 2017, such as issues concerning the management of data, the effective supervision of cloud providers, and concerns around data location and access, have not entirely gone away but the barriers to cloud adoption have reduced.

Regulators are demonstrably more positive about the cloud for financial services, albeit not without some reservations. Cloud providers have also become more mature. Compliance programmes, continued policy engagement with regulators, and contracting positions which accommodate regulatory requirements, are now expected aspects of the market’s leading cloud service providers.

Having experience in regulatory outsourcing projects and negotiating with suppliers and a deep understanding of the principles that underpin the regulatory rules is important for a smooth process.

Computer cloud cover

Public cloud adoption is still relatively new among European insurers, but that is likely to change. One of the main growth areas for cloud adoption in insurance is in relation to underwriting and pricing, where greater use of artificial intelligence (AI) to drive decisions means that greater processing power is needed.

There is growing pressure on financial institutions to put new services online – that demand has only been heightened by the pandemic. There are also growing demands on financial services firms over the need to be resilient, withstand shocks such as the pandemic, and ensure “always-on” availability.

Cloud solutions also enable financial institutions to make strategic use of data as they enable data siloes to be broken down and allow financial institutions to have a more rounded view of the end customer. Operating in the cloud also offers the computing power needed to generate more frequent, accurate insights. Established financial institutions have enormous data lakes, but struggle to use them strategically if the data is stuck in siloes.

We have also seen the emergence of open Application Programming Interfaces (APIs) in Europe and beyond. APIs drive inter-connection between banks and third-party solution providers, and that in turn spurs on banks to adjust their underlying architecture to make it more customisable and scalable.

There are a several other benefits that financial institutions perceive they can derive from moving to cloud-based solutions, flexibility and scalability being two examples.

Financial institutions are working with AI and machine learning solutions as part of processing data and generating customer insights. Given the scale of the data held by established financial institutions, this kind of activity can quickly soak up the capacity of an on-premises data centre, whereas cloud offers a more flexible solution.

Cost savings are another factor. The installation and maintenance of on-premises IT systems is lengthy and costly, whereas using the cloud reduces the hardware cost and can move the charging model to one which is service-based, where costs vary depending on the level of use.

As financial institutions seek to move to the cloud to take advantage of the benefits it offers and join challenger firms and fintechs who were “born in the cloud” that are providing growing competition, there is little room left for financial institutions unwilling to consider any cloud adoption at all.

Yvonne Dunn, Partner, and specialist in financial services technology at Pinsent Masons