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Cloud use charted in UK financial services survey

City of London financial district

A Bank of England survey shows banks are using cloud-based services more widely than insurers, but a fintech expert believes forthcoming guidance could spur growth in the uptake of cloud services by UK insurers.

According to the Bank of England, the UK's 30 largest banks have adopted nearly 2,000 cloud-based applications between them. In contrast, the UK's 27 largest insurers have adopted fewer than 100 cloud-based applications in total.

Scanlon Luke

Luke Scanlon

Head of Fintech Propositions

There appears to be a great opportunity for insurers to embrace the cloud as more clarifications through guidance are provided by regulators

The BoE said that while the survey shows that "the maturity of transitioning to the cloud is higher for banks than insurers", the disparity might be exaggerated by banks' greater familiarity with reporting on the topic.

The survey found that both banks and insurers most commonly use cloud outsourcing to access software-as-a-service (SaaS) solutions, with take-up of 'infrastructure-as-a-service' (IaaS) solutions in the minority in both cases.

In the case of banks, the survey found that banks use cloud outsourcing for file sharing and collaboration in 23% of cases, and for performing other functions such as business management, finance, communications and fraud detection. Analytics, customer relationship management and business management have been identified as the three most common reasons why insurers use cloud outsourcing.

Luke Scanlon of Pinsent Masons, the law firm behind Out-Law, said: "The figures highlight the significant growth of the use of cloud both at the infrastructure and application level by financial institutions."

"The regulatory landscape continues to shift with banks coming to terms with the European Banking Authority’s requirements now also needing to consider further EBA ICT risk requirements and the PRA’s future outsourcing expectations. Insurers on the other hand also will need to look closely at the PRA’s views and cloud guidelines to be provided by EIOPA. As the figures demonstrate such a large increase in use by banks, there appears to be a great opportunity for insurers to embrace the cloud as more clarifications through guidance are provided by regulators in the coming months," he said.

In detailing its survey results, the Bank of England flagged "the potential for concentration risk". Andrew Barber, who specialises in financial services regulation at Pinsent Masons, said the Bank of England's pledge to use the results of the survey to inform and adjust its supervisory approach to cloud oversight suggests new regulation to address concentration risk could be forthcoming.

Barber said: "Cloud outsourcing plays an important role in minimising the costs to financial institutions of maintaining and updating large amounts of proprietary IT software and infrastructure. It is central to the viability and growth of new UK fintechs. At the same time, both SaaS and IaaS involve the movement of significant amounts of personal data and its storage and security offsite and into the responsibility of service providers."

"The Bank of England and other regulators have previously raised concerns about the level of concentration in cloud outsourcing. How regulators choose to respond to the concentration in the market will be relevant both to outsourcing providers and to the financial institutions whose business models now rely on significant outsourcing," he said.

Late last year, the Financial Stability Board (FSB), which monitors for and makes recommendations to address vulnerabilities affecting the global financial system, said the development of new standards could help address issues of 'lock-in' in cloud outsourcing.

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