Risks of Cloud Computing in Banking & Financial Services

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Organizations today are rapidly migrating to the cloud to seize the benefits of infrastructure scalability, improved agility, and improved performance. Yet banks and other institutions in the finance sector often take a more tentative, cautious approach to cloud adoption.

Learn why banks are lagging in embracing the cloud and how these organizations can overcome common barriers to realize the benefits of cloud computing.

Things to know about cloud computing in banking & financial services:

  1. What is Cloud Computing?
  2. Cloud Adoption Barriers in Banking & Finance
  3. How Finance Institutions Can Overcome Barriers and Mitigate Risks in Cloud Adoption

What is Cloud Computing?

Cloud computing is the on-demand delivery of different computing services over the internet, including databases, software, servers, and analytics. Instead of maintaining physical data centers and servers, you access storage & computing power as needed from a cloud provider. 

5 Cloud Adoption Barriers in Banking & Finance

Organizations in the banking and financial services industry are commonly concerned about certain risks and barriers to cloud adoption, including:

  1. Architectural complexity & technical debt
  2. Security risks
  3. Compliance risks
  4. Lack of cloud skills
  5. Service availability risk

Architectural complexity & technical debt

Many larger banks face the intimidating challenge of untangling their complex legacy systems and executing a successful, large-scale move to a public cloud provider.

Executives in these institutions often mistakenly believe that delivering services on private cloud is more cost-effective than public cloud. Executives are also often concerned that hybrid architectures can grow very complex.

But the complexity created by the mix of operating traditional legacy system and attempts at creating private cloud architecture exacerbates technical debt, raises operational and security risks, and lowers the agility to compete in today’s market.

Modern cloud management solutions can effectively address these complexities by facilitating policy and security automation, container orchestration and management, and traffic monitoring across platforms. They can also inherently mitigate technical debt by maintaining modern, mature operational capabilities to maintain your services at the exacted service level and efficiency.

An optimized cloud strategy is essential to ensure a successful transition to the cloud, reduce costs, and maximize return on your cloud investment.

Security risks

Concerns around data privacy and security is the most significant barrier to cloud adoption in the finance industry. This is understandable, due to the extremely sensitive nature of the customer data they manage.

However, cloud providers recognize these risks and tailor their systems and offerings accordingly. Financial institutions can also leverage state-of-the-art encryption and key management, whether they choose the key management system provided by the cloud provider or a trusted third party.

Additional measures, such as multi-factor authentication, software-based threat mitigation tools, and established governance, security, risk, and compliance guardrails, can be used to preserve data security and ease organizations’ concerns.

Organizations also need not worry about compromising on analytical functionality when focusing on security. Thanks to recent advances in cloud technology, machine learning and computation can be seamlessly applied to encrypted data in the cloud.

Compliance risks

Because banks and organizations in the finance sector deal with sensitive customer information, they are subject to extensive data, security, and privacy requirements, including:

  • Title V of the Gramm-Leach-Bliley Act: Requires financial institutions to “protect the confidentiality and security of [customers’] nonpublic personal information”
  • PCI DSS (Payment Card Industry Data Security Standard): Applies to all corporate entities that store, process, or transmit cardholder data
  • GDPR (General Data Protection Regulation): Governs the use and protection of personal data by corporate entities with operations in the EU or that collect the personal information of people living in the EU

Many organizations fear that transitioning to the cloud will make it more challenging for them to comply with regulatory requirements. However, modern cloud services are designed to comply with many of these requirements out of the box.

Cloud-based tools can also enable compliance by automating policy monitoring and enforcement, such as detecting and alerting an organization’s compliance officers to security events.

Additional methods, including strong key management policies and multifactor authentication, can be used to facilitate financial institutions’ compliance.

Lack of cloud skills

One of the greatest obstacles to cloud adoption is the lack of internal cloud skills. A successful cloud transformation requires deep technical expertise, which banks and financial institutions often lack internally.

The cloud skills gap has a significant impact on organizations, slowing down their timelines for cloud adoption, migration, and maturity.

To overcome this barrier, mitigate risk, and ensure success in their cloud journey, organizations may benefit from turning to outside expertise for support in their cloud strategy, architecture, migration, and optimization.

Service availability risks

The cloud is reliant on internet connectivity, and any disruption to that connectivity can result in service disruptions. Banks need to ensure that their cloud service providers have robust disaster recovery and business continuity plans in place to ensure that services are available in the event of an outage.

They also need to ensure that their CSP is compliant with all necessary financial and banking industry requirements. Banks should conduct due diligence on the cloud provider’s security and compliance posture and ensure that the necessary contractual protections are in place, including cyber insurance policies.

How Finance Institutions Can Overcome Barriers & Mitigate Risks in Cloud Adoption

Businesses in the finance sector can mitigate risks and optimize their cloud resources in these ways:

  • Security measures: Leveraging threat management tools, modern Identity Governance and Administration (IGA) tools, existing enterprise security tools and processes, and key management can ensure your sensitive customer data stays secure and protected.
  • Change management: Migrating to the cloud, like any major shift in technology or processes, can be met with internal resistance or confusion from employees and leaders alike. In order to ensure the change sticks and the return on your investment in the cloud is realized, you need to incorporate organizational change management.
  • Resilience and disaster recovery: Disaster recovery plans are critical for business continuity. Just because your resources are in the cloud does not mean they will always be available, so it’s vital to have a disaster recovery plan in place to ensure your revenue and business reputation don’t suffer when your resources go offline.
  • Vulnerability readiness: Financial institutions can use processes such as penetration testing and vulnerability assessments to gain a better understanding of how capable their infrastructure is of handling a complex, hybrid or multiload environment.
  • Detect risks: Automated tools can enable your financial institution to detect and address any security vulnerabilities that result from misconfigurations of cloud resources.

How Can AIM Consulting Take Your Cloud to the Next Level?

Our experts at AIM Consulting can help you navigate the investments you should be making in cloud technologies, migrate to cloud platforms, plan for business continuity and disaster recovery, and leverage cloud-based automation tools like AWS Pipeline for CI/CD.

Our flexible engagement model allows us to deliver from strategy to implementation to maintenance in ways that make the most sense for you and your business.

Need Help Achieving Security & Performance in the Cloud?

Our deep expertise in cloud strategy, migration, and optimization supports your financial institution in tightening security while taking full advantage of the agility, efficiency, and scalability that the cloud offers.