Rising above: addressing regulatory challenges in financial services through a cloud-based approach

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Natalia Moose Director of Marketing, EMEA at nCino
3min read

Guest author Natalia Moose shares her thoughts on how regulation is becoming friendlier towards the cloud following our recent report Why banks should be cloud based in association with nCino.

The advantages of the cloud are well documented – better business agility, faster innovation and operational efficiency, to name just a few. So why have many financial services institutions in Europe been slow to migrate to the cloud?

Cloud is a relatively new technology, with the first commercial solutions only coming to market in the last 15 years. Because of this technologists, regulators and users have different views so it’s been difficult to develop a clear understanding of what a cloud transformation entails.

technologists, regulators and users have different views so it’s been difficult to develop a clear understanding of what a cloud transformation entails.

In Europe, the UK was the first country to issue cloud guidelines in 2014, with updates in 2016 and September 2019. The European Commission also published guidance in the European Banking Authority (EBA) Guidelines Cloud Recommendations, now embodied in the EBA Outsourcing arrangement. Similarly, The European Cloud User Coalition (ECUC) published a paper in May 2021 recommending, among other matters, the adoption of ‘model clauses’ for the long-term compliant use of cloud technologies.

For financial institutions (FIs) in Europe, demystifying and maintaining compliance with the myriad of positions and regulations has made it difficult to move systems, despite the cloud being a key technology to develop new financial services and innovate.

However, with more clarity in regulations, FIs’ two main concerns about the adoption of public cloud - security and regulatory approval - are slowly being alleviated.

This is, in part, because regulatory bodies such as the Financial Industry Regulatory Authority (FINRA) are themselves adopting the cloud and getting a more realistic picture of the security it offers and developing best practices to safeguard critical data. In the UK, regulators are acknowledging that cloud service providers can help FIs become more agile in response to market developments – such as those seen from the COVID-19 pandemic, while using analytics to adjust their business models at speed as expectations evolve.

In the UK, regulators are acknowledging that cloud service providers can help FIs become more agile in response to market developments

There are many reasons for FIs to migrate to the cloud.

It enables better integration between business units: By adopting the cloud, FIs can have a single view of the customer as different business units have shared access to data

It speeds development and delivery of new products: FIs can experience increased agility as it’s easier to release new technologies like AI, which often rely on cloud infrastructure

It simplifies integration of new capabilities from third parties: FIs can build out their tech stack and add more functionality by utilising third party APIs due to the highly configurable nature of the cloud

It enables FIs to update infrastructure more quickly: FIs can speedily release new features to their customers and react quickly to changes in the market

It enables banks to scale processing power: Operational expenditure on cloud computing allows for infinite scalability and can fluctuate in line with demand, increasing when needed, and scaling back when not - so FIs only pay for what they use

As customer expectations continue to evolve at a rapid pace and challengers disrupt the market, FIs that rely on on-premises technology as the foundational root of their business are in danger of harming their growth. The discussion is no longer about whether to deploy cloud - it’s about how to plan a strategic and careful migration to cloud that has a positive effect on the identification and management of risks.

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