New guidance from the Financial Conduct Authority (FCA) gives banks, insurers and other financial service providers the green light for use of the “cloud”, which it defines as “IT services provided in various formats over the internet”.
In its proposals, the FCA aims to “avoid imposing barriers to firms’ ability to outsource to innovative and developing areas” and provide sufficient guidance on outsourcing to the cloud and other third-party IT services. It comes a year after Project Innovate, an FCA initiative launched to foster innovation in the financial services.
Many financial service providers have been reluctant to adopt cloud computing due to security and privacy fears. There is also some legal complexity, particularly in cases when data is outsourced to overseas firms. Thenew guidance aims to allay those concerns and show that when implemented with consideration and in a manner that complies with FCA rules, cloud computing has the potential to “facilitate entry and/or expansion, and increase the ability of financial services providers, overall, to renew their IT systems in a more efficient manner"4. Other benefits of cloud computing include greater visibility and control.
With many cloud providers sub-contracting, the FCA also suggests firms perform thorough checks to ensure they know where their data is stored. Companies should also establish whether their system provider falls under UK law and are subject to UK jurisdiction. If not, the company’s auditor and the FCA should have effective access to its data as well as the cloud provider’s business premises5.
Other areas the regulator says firms need to consider when thinking about outsourcing to the cloud include regulatory matters, business continuity and how to manage risks. Having an exit plan that is “understood, documented and regularly rehearsed" which enables it to come out of outsourcing arrangements "without undue disruption to their provision of services, or their compliance with the regulatory regime" is also in its list of recommendations.
The FCA's guidance is open to consultation until 12 February 2016.