Cloud Computing

Banks finally welcome cloud computing cover

On a bright autumnal day five years ago I entered the luxurious confines of the London restaurant One Lombard Street and, in a private room with a high and domed roof, I chaired a breakfast for the UK’s banking CIO community. The pains of the global financial crisis were still being felt even in this rarefied part of our sceptered isle and the conversation of the briefing made it clear: banking CIOs and their budgets in particular were feeling the squeeze of austerity.

The subject of this breakfast, one of the most widely attended by banking CIOs I have had the experience of leading, was cloud computing. Five years ago, the reception to cloud computing was akin to the hoary frosts that first make an appearance in autumn: cold, stark, dazzling and concise. Cloud computing was, at that time, unwelcome.

You could almost summarise the morning’s debate as “over my dead body”. The reasons for this chill wind blowing cloud computing talk away from the banking centres of Lombard, Leadenhall, Cornhill and Threadneedle Street was very much reflective of the time. For some, despite the well chanted mantras of cost savings that cloud computing could and has delivered (though not in all cases), it looked like the banks were still being free and easy with customers and in some institutions, the public’s money.

Other attendees spoke of the lack of data residence assurances they could give their paymasters and customers - a concern that is alive and well in banking and any highly regulated sector today. Whilst for other members of this august gathering there were far more pressing issues within their institutions to worry about than slashing server costs and improving the agility of the application suite available to the workforce.

Today, in the year 2016 and with rumours of health returning to the UK economy and in particular our critical financial services sector, the reception towards cloud computing has the warm breeze of the oncoming spring about it. A series of recent discussions with the banking CIO community finds that the attitude of CIOs has changed completely and many see cloud computing as welcome (cloud) cover from the burning heat emitted by the increasing number of regulations to which the banking sector has to adhere.

Cloud has won some hearts in banking because the technology has the ability to help banks stress-test themselves, which is now a requirement in the UK, following the financial crisis that began in 2008. Banks must now be rigorous in identifying risks and have strong contingency plans in place. These are scenarios that place a high demand on the technology capacity of the bank and therefore prove the worth of cloud computing.

“Banks can now tap into that power and address any peaks in demand,” one international banking CIO told me. “You need an unmetered amount of capacity to run these scenarios at the capacities that they demand, so options like the Amazon [AWS] Elastic Compute Cloud are incredibly powerful.”

“It’s about flow and the ability to scale up and scale at speed,” an investment banking technology leader tells me, adding that there is a great deal of scepticism about public cloud options like AWS, but exponential adoption of private and hybrid cloud.

Both CIOs agreed that not only have the banks gone on a flight of cloud computing discovery, so too have the industry regulators, who have become “much more accepting” of cloud.

“One of the big challenges is the capital risk models that must be maintained according to regulatory demands. Banking CIOs must make that part of the opex rather than the capex,” an international banking CIO says of the increasing regulatory demands placed on banks which has created a demand for cloud technology in the sector.

Regulatory demands don’t show many signs of a let-up, though Sir John Vickers, who was appointed to head the Independent Commission on Banking inquest, recently accused the Bank of England of being too light on the financial services industry.

Though there have been numerous extensions to the Basel III accord, its BCBS 2329 regulates the principles of data aggregation. This means CIOs and their organisations have a responsibility to be accountable for the data they hold and who the data owners are. Basel III also has strong stipulations on capital, liquidity risk and stress testing.

“The same rigour used for a physical asset like gold must now be used with data,” says the international banking CIO, of how important information and the teams that handle it have become in banks. The Dodd-Frank Wall Street reforms in the US, and the Markets in Financial Instruments Directive (MFID) in the UK “are all about data, its regulation, risk, reporting, management and stress testing”.

Add challenger financial services options to the skyline, many, if not all, built on cloud platforms at low cost and offering great agility, and it is clear that banking CIOs must seek out the shade offered by cloud computing. None of the recent and well reported cyber-attacks were as a result of cloud computing and some analyst houses point out that the attacks would not have been as devastating if the organisations had embraced the cloud. Banking CIOs will take flight to the cloud as their organisations have little choice, regulatory demands, market challenges and decreasing margins darken their skies.


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Mark Chillingworth

Mark Chillingworth is a CIO and CTO journalist, ghost writer, moderator and advisor with over 11 years experience. From 2010 to 2016 he was Editor in Chief of the award-winning CIO UK. In 2011 he created the CIO 100, an annual transformation power list of the UK’s most influential CIOs and launched the UK’s first CIO Podcast in 2016.

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