[The New Compliance Normal] COVID-19 accelerated the migration of financial firms to the cloud

This is the first in a series of blog posts dedicated to “the new compliance normal.” RegTech companies have joined the conversation to talk about how regulatory compliance regarding market abuse has shifted since the pandemic began. During the research for this post, it was apparent that many of the firms addressed the shift to cloud as a possible solution to the current challenges that the pandemic brought with it.

Perhaps the greatest effect of COVID-19, beyond the catastrophic loss of life and financial turmoil, is the migration to the cloud by financial firms. Whereas digital transformation was a concept (pre-COVID), it has emerged as the new business imperative. Nearly all banks have mulled it over and a surprising number enacted the transition on some level – although not comprehensively. For many, digital transformation was inevitable; it simply took a global pandemic to accelerate its uptake.

Banks have been slow to embrace cloud computing

Banks have been slow to embrace change and to adopt new technology overall, some are arguably fully resistant to the idea of migrating financial services information and services into the cloud. But the new compliance normal is forcing a shift.

Banks, called out for their resistance, cited “regulatory ambiguity” as the primary reason for their reluctance to embrace the cloud yet it is now regulatory compliance – spurred by a global pandemic – that is driving the adoption of cloud-based solutions. Virtualized applications which include enhanced credentialing, SSL and data encryption provide greater security than in-house on-site solutions.

Outdated privacy laws have, until recently, limited the transfer of financial data across geographical borders. Innovation has been thwarted via the inability to bypass legacy systems with arcane policies and architectures. COVID-19 ushered in the era of “adapt or die.” According to Lysis Financial, select firms, particularly those in Ireland, who were already prepared “with effective and tested business continuity plans” fared well and were almost unaffected. Cloud-based infrastructures have enabled firms to be resilient, compliant and minimally impacted by the pandemic.

The benefits of a cloud-based compliance solution

Larger banks have offered data that suggest a cloud-based strategy affords them about a 25% savings on IT infrastructure costs. Collectively, that’s about $15 billion per year. However, mid-size and smaller banks may not be seeing the same cost advantages; some even suggesting that their costs are now higher. Despite the costs or cost-savings, cloud-computing is emerging as a compliance requirement. According to FIS, “Managed Services in the cloud are not just less costly but also more accessible even in adverse conditions. It has never been more apparent than on-premise compliance software brings along significant risks. The ability to conduct remote installations and upgrades is becoming a requirement.”

Cloud-computing enables multi-channel relationships with customers at every step and for every service from data storage and transfers to the delivery of just-in-time services. Accessibility and reliability of information are boosted via a cloud-based architecture which, combined, has a direct effect on productivity and efficiency. Customers want this and expect it; banks benefit by it, too. CUBE recognized the benefits of increased connectedness with this statement, “Cloud-based systems allow for joined-up ways of working, ensuring connectivity across systems, controls and employees; resulting in increased operational effectiveness – from the compliance team to the C-suite and everyone in between. Firms should be looking to the Cloud for adaptable solutions that can be used at-scale to meet business needs as they fluctuate during uncertain times.”

Capacity, resiliency, and redundancy, which are essential aspects of cloud-based solutions, mitigate risk for the financial firms. Lower risk means a reduced likelihood of violating compliance requirements, being hacked, or being negatively exposed with respect to brand reputation. This is especially important in the new compliance normal. “Centralized policy management for the entire organization” is unequivocally at the core of reduced risk according to ClauseMatch.

Competitive advantage is also conferred to the financial firms who have migrated to the cloud. In this era of COVID, both traditional and non-traditional competitors are innovating to deliver increasingly personalized service to clients. As such, banks need every competitive advantage they can get, particularly as margins are eroding and shareholders are expecting increasingly greater returns.

The future came quicker than expected

COVID-19 has brought the future to the present. The new compliance normal has arrived. Alyne states, “Smooth future-orientated operations may be extremely challenged if the organisation continues to rely on on-premise software. There is no better time than now for institutions to adopt scalable, cloud-based solutions.” We couldn’t have stated that any better ourselves; the time to migrate to the cloud to meet the new compliance normal is now.

Gain insights and knowledge at The New Compliance Normal Hub and contact us if your organization would like to contribute to the conversation.