Regulation, Multicloud and Finance: An Emerging Triangle
Financial services have long faced regulatory measures, even more so since the financial crisis of 2008. Basel III, an international framework developed in response to that era, brings updates to regulatory guidelines that are projected to prompt “dramatic changes to the current US risk-based capital framework,” according to an EY article. Regional and small banks may face even more pressure, Deloitte notes.
This increased regulatory scrutiny means increased infrastructure scrutiny. Financial services must demonstrate that their approach to the cloud includes data protection, customer privacy, operational resilience, maintenance of transactional integrity and reporting.
A 2023 EY report indicates that most jurisdictions do not yet have cloud-specific regulatory requirements. That’s changing rapidly, however, and the same report states that the regulatory landscape is increasing in complexity.
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For example, FINRA, the Financial Industry Regulatory Authority, has weighed in on brokerages’ agility in the cloud space. “Firms may wish to consider whether multicloud or hybrid cloud options are compatible with their business needs,” FINRA notes in a recent report. “Alternatively, they may wish to consider adoption of an exit strategy to mitigate against an unfavorable lock-in scenario.”
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Forbes notes that regulators are taking a closer look at the risks of cloud use, including the financial industry’s tendency to use third-party service providers, forcing user experience leaders to carefully balance regulatory needs against the advantages of additional cloud partnerships. But those same third-party providers also reveal why a multicloud approach can support financial services in this regulatory environment.
Why a Multicloud Strategy Is a Tremendous Regulatory Win
Risk management is a key part of the entire financial sphere. Using multiple cloud service providers is inherently in line with risk management practices, as Forrester points out in a 2022 blog post. It’s essentially the tech version of diversification — a risk management principle that investors rely on.
By using multiple providers, financial organizations deepen their bench of capabilities. The practice grants them the “strategic agility and operational resilience” that EY points to as a critical part of navigating regulatory policy. It also gives them the “exit strategy” that FINRA highlights and allows financial services providers to give continual service to customers even amid complex compliance audits. And should an audit happen, multicloud environments are often equipped with centralized monitoring (particularly when institutions are working with a cloud management service), granting auditors full visibility into the cloud system.
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Partnering with multiple cloud providers can assure financial organizations that they’re using the best capabilities from each provider; working with a cloud management service can help corral these capabilities so that financial institutions can focus on their mission-critical IT needs. Forrester reports that FinOps leaders are developing standardization and portability between cloud providers, regardless of management service.
Cloud providers often develop products designed to integrate with hyperscalers. Red Hat, for example, touts its ability to support Microsoft Azure, Amazon Web Services, Google Cloud and IBM, which offers a specific cloud for financial services. Nutanix offers the type of business continuity that financial services customers — and regulators — insist on from the sector.
Regulatory support isn’t the main reason financial institutions are leaning into the cloud, but it’s a good reason for them to keep doing so in 2024 and beyond.