The financial technology company NEX (LON:NXG) and the research, advisory, and consulting firm focused on financial services technology, Celent, announced that they have published a new white paper. named ‘Cloud in Capital Markets – Getting ahead of tomorrow.’ The white paper provides an in-depth analysis of the benefits and risks of cloud technology and its anticipated impact on future market structure.
The cloud has been an important driver of the recent wave of financial innovation with nearly all fintech and regtech firms built natively in the cloud. With global annual Capital Markets IT spend anticipated to reach $145 billion in 2018 with organisations expected to move their data storage from traditional data centres to cloud data centres over the next three years, cloud technology is expected to play a more central role in all aspects of Capital Markets.
Regulations such as BCBS 239 have demanded deeper insights into data location, availability, usability and auditability. The level of transparency and improved data provided by cloud technology, has led regulators to embrace the cloud for their own regulatory needs and the UK’s Financial Conduct Authority and the Financial Industry Regulatory Authority in the US, have been leaders in this space.
Yet while many financial institutions have reviewed their capabilities against cloud providers and recognise the many advantages of the technology and its ability to integrate with their own legacy infrastructures, they grapple with risks such as the economic changes to switching to an outsourcing model, differing regulatory positions across jurisdictions and their data security responsibilities, versus that of cloud providers.
The risk of data breaches and subsequent service disruption leads many to question whether cloud providers should be regulated and could open the door to the regulation of technology vendors more broadly. While this is unlikely, it is expected that regulators will work with the industry to define common minimum standards and best practices with a delineation of responsibilities between cloud providers and financial institutions.
Ben Pott, Head of Government Affairs, NEX, said:
Cloud technology is becoming increasingly important in Capital Markets and, in an era of increased regulation, the significant benefits of improved data quality, enhanced auditability and transparency, lend themselves to more efficient trade processing. Working with Celent to produce this whitepaper, we explore the many advantages of cloud technology and address concerns held by financial institutions.
Brad Bailey, Research Director, Capital Markets, Celent, added:
Firms are under increasing pressure from a cost, business model, cybersecurity and regulatory perspective. As they grapple with processing, analysing and leveraging advanced analytical and machine learning techniques on an ever-exploding data set, the case for the cloud has never been more compelling. Cloud is the simple answer to deal with a data driven capital market.