No More Secrecy
Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Regulators worry tech giants ‘Too Big to Fail’ because they are hosted in the cloud
Reuters | By Iain Withers and Huw Jones | Aug 20, 2021
No More Secrecy
Regulators worry that cloud failures would cause banking systems to fall over and stop people accessing their money, but say they have little visibility over cloud providers.
Last month, the Bank of England said big tech companies could dictate terms and conditions to financial firms and were not always providing enough information for their clients to monitor risks – and that “secrecy” had to end.
There is also concern that banks may not be spreading their risk enough among cloud providers.
Google told Reuters that less than a fifth of financial firms were using multiple clouds in case one failed, according to a recent survey, although 88% of those that did not spread their risk yet planned to do so within a year.
See: Big techs in finance: regulatory approaches and policy options
Central bank sources said part of the solution may be some form of mechanism that offers reassurance on resilience from cloud providers to banks to mitigate the sector’s aggregate exposure to one cloud service – with the banking regulator having the overall vantage point.
“Regardless of the division of control responsibilities between the cloud service provider and the bank, the bank is ultimately responsible for the effectiveness of the control environment,” the U.S. Federal Reserve said in draft guidance issued to lenders last month.
FINRA, which regulates Wall Street brokers, published a report on Monday ahead of potential rule changes to ensure that using the cloud does not harm the market or investors.
Being able to switch cloud providers easily when needed is, however, a task that is more easily said than done and could introduce disruptions to business, the FINRA report said.
The Buck Stops with Us
Banks and tech firms contest the suggestion that greater adoption of the cloud is making the financial system’s infrastructure inherently riskier.
Adrian Poole, director for financial services in the United Kingdom and Ireland for Google Cloud, said the cloud can be more effective in bolstering a bank’s security capabilities than by building it in-house.
See: Market value of big fintech companies rises to $1 trillion, more than the largest banks
British digital lender Zopa said it had moved 80% of its transactions to the cloud and was working to mitigate risks. Zopa Chief Executive Jaidev Janardana said the company was also deliberately leaning on tech firms’ expertise.
“Cloud providers invest a lot of resources in security at a scale that few individual companies could manage,” he said.
Google’s Poole said the company was open to working more closely with financial regulators.
“We may one day see regulators pulling data on demand from regulated banks with cloud-enabled application programming interfaces (APIs), instead of waiting for banks to periodically push data at them,” he said.
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