Regulators worried as banks rely on Big Tech for cloud services

Banks may have been at the centre of the 2008 financial crisis, but it’s the global clout of tech giants such as Google, Amazon, and Microsoft that regulators are becoming increasingly worried about.

This is because of the “speed and scale” at which financial institutions are moving payment systems, online banking and other critical operations to the cloud internet platforms of Big Tech.

“We are only at the beginning of the paradigm shift, therefore we need to make sure we have a fit-for-purpose solution,” Reuters quoted as saying a financial regulator from a Group of Seven country.

There are apprehensions that a glitch at one cloud company could undermine confidence in the financial system due to disruptions in key services such as payments or access services across multiple banks and countries.

The US Treasury, European Union (EU), Bank of England, and Bank of France have already started increasing scrutiny of banks relying on a small group of tech companies for cloud services.

“We’re very alert to the fact that things will fail,” said Simon McNamara, chief administrative officer at British bank NatWest. “If 10 organisations aren’t prepared and are connected into one provider that disappears, then we’ll all have a problem.”

The EU has proposed regulating “critical” external services for the financial industry. The Bank of England’s Financial Policy Committee has called for greater insight into agreements between banks and cloud operators, while lenders were asked by Bank of France last month they must have a written contract that clearly defines controls over outsourced activities.

Bank spending on cloud computing was up by more than 50% in 2019 from 2018, The European Central Bank said on Wednesday.

Banks are forecast to double spending on cloud services to $85 billion in 2025 from $32.1 billion in 2020, according to data shared by technology research firm IDC shared with Reuters.