Cloud computing is one of the most successful technologies to come out in recent years, and many companies and industries have been eager to jump on board with it, and why not? It promised greater flexibility, scalability, and responsiveness, and it has delivered, but while cloud computing has been the proverbial white knight for many businesses, there have been some industries that have been slow on the uptake.
For the banking and finance sector, cloud computing services can seem like a double-edged sword. On the one hand, the on-demand service offering is in high demand from consumers, but on the other hand, there have been significant security concerns raised within the industry, and these concerns are definitely valid.
Banking is one of the most regulated sectors in the world, and it needs to be because there is too much at stake. If a bank isn’t well managed and makes a bad investment, then it causes ripples throughout the wider economy as both individuals and corporations lose money, so the rules are there to protect the individual, the bank, and the economy.
With cloud computing, though, banks may have felt they were about to witness their doom. Suddenly, one of the most regulated industries found themselves within new and completely unregulated terrain. Despite cloud infrastructure not being governed by its own ‘cloud law’, though, with the right risk management, cloud computing can also be a white knight for the banking sector as we move towards a completely digital future.
IT risk management explained
IT risk management is a process of managing the risks related to IT, including the cloud. It is important in a data-driven environment because while you are trying to minimize the risks, you are also maximizing your security and reliability.
In IT, business risks come in many forms: security leaks, software vulnerabilities, data breaches etc. Technology has brought new and exciting opportunities for organizations to make money, but with it, comes new ways for malicious actors to steal information.
To ensure that their information is protected and secure against threats, banks must take many important steps like identifying potential threats as early as possible, deciding on the level of severity of these threats and then implementing a plan to minimize the impact of these risks.
Industry risks and solutions in the cloud
The growing importance of regulations, the risks associated with outsourcing, and data security challenges have discouraged banks from using cloud services in the past. To address this, some cloud providers have responded to these challenges by increasing their physical presence across the globe and boosting their investment in security, which has contributed to a greater willingness among banks to use cloud services.
While these developments have also helped resolve issues regarding the obligation to host data within the country where data is collected, to be effective, cloud adoption requires a structured approach that includes a risk assessment and a continuous vendor management process.
For the financial services industry, keeping confidential information safe from unauthorized external access or corruption is a challenge. Since the bank and not the cloud service provider holds the encryption and decryption keys for client-side encryption, it is impossible for the cloud service provider to access readable data. While client-side encryption may address some data security concerns, it can affect performance, therefore, significantly limiting cloud benefits such as data analytics, search capabilities, and AI.
A balance must be found between the usability and security of your cloud environment, and it can be successfully achieved by implementing the right cloud infrastructure for your specific needs.
A bank, for instance, may choose to run a private cloud in its own data centers but also consume public cloud services for high-performance computing, disaster recovery, or high-availability services. Integration with on-premise data processing, identity and access control policies, as well as other security services should also be considered.
Regarding software-as-a-service (SaaS) or business process-as-a-service (BPaaS) cloud delivery, data cannot be accessed by the cloud service provider unless it is agreed upon or required to provide the service – for example, to recover data or ensure business continuity. Therefore, banks must work with their IT staff to ensure that on-premise data is adequately secured, so it cannot be accessed by the cloud service provider.
Third-party vendor risks
Running a core banking system in the cloud creates a dependency on the cloud vendor. To manage this risk, the organization must ensure that they put into place the necessary processes, technology and controls to ensure that the cloud vendor is aligned with the organization’s objectives and that the vendor is compliant with the appropriate requirements in their jurisdiction. If an adequate risk assessment is performed and best practices are implemented, running a core banking system in the cloud should not be any riskier than running the same system on-premise.
To minimize supplier risks, organizations should implement a process to monitor the lifecycle of the vendor relationship and specifically align company objectives with the cloud service provider’s offerings, as well as monitoring risks and executing an exit strategy.
Legacy transformation challenges
Most major banks rely heavily on legacy applications that run in a data center. To take advantage of the benefits of moving these applications to the cloud, legacy applications need to be refactored and/or re-designed. This process can be expensive and risky. Simply switching from a data center to cloud infrastructure will not deliver the full benefit of cloud services. Applications need to be broken down into micro-services that are API-connected and use cloud-native components to optimize expenditures, resilience and availability.
Final comments on cloud risk management
When a company adopts cloud computing, some of the risk management responsibilities are transferred to the cloud service provider, but not the accountability for said risks. The company remains accountable for the risks and cannot transfer those risks to the cloud service provider. As a result, the company’s operational risk management framework must take into account the special circumstances arising from cloud computing adoption.
An important element of the framework should be to classify the information assets so that the inherent risks can be managed effectively. The contract must include terms that define the right to audit the cloud environment, and an organization must also have a plan to move away from the cloud service and terms in place to cover this. The IT service management procedures and controls should also be redesigned, and the appropriate team structure and capabilities should be in place to manage the cloud services.
Risk management is an essential part of banking in today’s digital environment, and if not done correctly, your financial institution could suffer. Don’t chance the future of your business – contact the cloud experts at Skynet MTS. With their extensive experience in cloud computing for the financial sector, you can rest assured that your cloud risks and concerns will be managed and mitigated effectively.