Is a 'UK financial services cloud' a real possibility?

By Sooraj Shah
24 Mar 2014 View Comments
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The chief analytics officer at RBS’s customer services group, Alan Grogan, has called for the creation of a UK financial services cloud to make it easier for the entire sector to leverage cloud computing while minimising the risks associated with the model.

But how practical is the idea of the UK’s financial services firms moving their core systems to the cloud en masse, given that many experts have criticised the sector for failing to keep pace with technological advances. Indeed, RBS itself has had issues with legacy systems, and suffered a major IT disaster in the summer of 2012, which at the time was blamed, in part, on poor systems testing processes.

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Grogan believes banks are eager to harness the cloud in order to lower costs and even tighten up their security – an area traditionally seen as one of cloud computing’s weak points.

“Instead of having various risk, resilience and security teams looking at a large global internal infrastructure, if you go to the cloud and do it correctly, you can divide installations between the specialist teams, so in theory it becomes a lot more protected in my view,” he said.

So why aren’t banks banding together to encourage the development of a specialist cloud for the financial services sector?

“The regulators in the UK and in Europe have not addressed the issue of the cloud,” explained Alistair Maughan, co-chair of law firm Morrison & Foerster’s technology transactions group.

“It’s been several years since the cloud has taken off and there is no guidance from the Financial Conduct Authority (FCA) as to what or how a financial services firm should go about adopting a cloud-based solution,” he said.

This contrasts with the US, where various federal agencies that cover the financial services sector came up with a joint guidance statement on the adoption of cloud computing services back in July 2012.

The first hurdle for UK banks, according to Maughan, is the need to convince both UK and European regulators that a UK financial services cloud, or even a European financial services cloud, could be secure enough to handle highly sensitive information.

Maughan believes security and data privacy would have to be built into the solution from the start.
“It would have to be properly partitioned, so you’ve got very strong security between the different users. A data leakage between, or the ability to migrate data from the RBS instance of the cloud to the Barclays instance of the cloud would encounter significant issues, so security and data privacy would have be built in from the start.

“Although there would be one cloud that has a stamp of approval from the regulator, it would in actual fact be a cluster of different clouds that are built to the same model, with no chance of any data leakage,” he added.

Another barrier to the idea is the fact that many of the banks operating in the UK are not based in this country, and have businesses that span the globe. For these banks, such as Citibank and Santander, moving to a UK financial services cloud would likely create complexities with their operations in other regions. Meanwhile, those UK banks that did adopt the new model might consequently gain an unfair advantage over their rivals, which would in turn bring them into conflict with Britain’s new competition watchdog, the Competition and Markets Authority.

Gartner analyst Gregor Petric added that the proposed solution could also affect applications like high-speed trading.

“Most apps can cope over considerable distances where it is not an inhibitor if a solution is based hundreds or thousands of miles away, but for banks location is very important because of latency,” he said.

This would mean that such a solution would have to be locally accessible to the banks.

There is also the question of who is going to fund such a model.

“We can’t expect the FCA to sponsor this or push it forward. However, if the government was keen to ensure that the UK remains a global financial services centre, it would ask the FCA to clarify or explain how a cloud-based solution could be adopted in the industry,” Maughan suggested.

The main problem with the idea, according to RBS’s Grogan, is that no bank will want to lead or push for a financial services cloud.

“We would need a collective bringing together [of organisations], and arguably sponsorship from our regulators and other parties,” he said.

He suggested that banks should “sort out their backyards first”, and then work together to reap the benefits of the cloud.

@Sooraj_Shah

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