Is the Cloud Reshaping How Financial Regulators Operate?

The finance sector is undergoing rapid changes when it comes to digital transformation

Emerging technologies, such as AI and blockchain, are reframing how banks operate and deliver services for customers. The widespread availability of mobile banking with built-in budgeting tools and instant payments has fuelled customer expectations and forced banks to evolve. This has meant that emerging technologies are becoming fundamental aspects of most finance organisations. Cloud computing is one of the key components of this transformation.

The finance industry has been notoriously slow at embracing innovation, especially the banking sector, but in recent years we’ve seen a more concerted effort by banks to streamline their services and create better online customer experiences. Concerns around data security in the cloud have largely been quashed, which has removed what was considered a significant barrier to entry for banks. Today, even some of the more traditional, high street banks are embracing the cloud as a critical tool for improving agility and providing a platform for cutting-edge technology. In fact, according to research from the Bank of England, the UK’s 30 largest banks have adopted nearly 2,000 cloud-based applications between them.

However, an air of caution remains within the finance sector when it comes to moving to the cloud, stemming from concerns over financial regulation. Nearly half of UK firms cite complex regulatory requirements as a key barrier to adopting new technologies, such as the cloud. To maximise the full potential of embracing cloud technology, financial companies must look to the possibilities afforded to them by RegTech.

Modernising financial regulation

Whilst cloud computing is modernising the whole financial services sector and paving the way for innovation, its impact on regulatory technology will be particularly striking. The cloud will streamline the way financial regulators currently regulate other companies. Historically, banks have struggled to produce the metrics requested by regulators which has slowed down the regulatory process and even induced hefty fines.

Regulators will now have a unique opportunity, through a cloud-based, secure data exchange, to access a company’s data and run their own reporting. By utilising a cloud data exchange, financial regulators can integrate disparate systems to communicate in real-time. This creates a seamless flow of information by transforming data from multiple systems into the same ‘language’. Regulators can therefore instantly view and analyse all relevant metrics, such as financial transactions, sales orders and stock levels. It also allows regulators to measure system risk entirely in real time.

Delivering financial compliance in real-time

The ever-changing landscape of regulatory compliance is also driving financial organisations to utilise cloud-based regulatory technology and leave behind antiquated legacy solutions. New regulations are being consistently introduced and the JWG, a financial think tank, estimates that over 300 million pages of regulatory documents will be published by 2020. In addition, new directives and laws have been introduced, such as GDPR, which are holding companies to account and ensuring they take strict responsibility for their data.

By adopting RegTech solutions, financial companies can monitor the current state of compliance against upcoming regulations, as well as real-time compliance. A cloud-based RegTech solution will enable banks and regulators to build platforms that will make use of artificial intelligence and machine learning. This creates an end-to-end automated solution that provides an automated interpretation of financial compliance. Data can also be routinely monitored allowing companies to rapidly identify risks and potential areas of non-compliance.

The complex and changing landscape of data compliance, coupled with the rapid increase in data volumes, has meant that adopting a cloud-based RegTech solution is simply too hard to overlook. It is therefore no surprise that the RegTech industry has been growing exponentially over the last few years and is due to be worth $12.3 billion by 2023, up from its market value of $4.3 billion in 2019.

The future is in the cloud

The modernisation of the RegTech industry, through cloud computing, is characteristic of the whole fintech sector. The scalability that the cloud offers will also enable the industry to keep up with the dramatic rise in data. In a data-driven era, the financial services sector is arguably the most data-intensive sector in the world’s global economy. Financial organisations produce huge amounts of data everyday with each monetary transaction and payment adding to their vast data sets.

A cloud-based data warehouse can be scaled up or down depending on usage. Should a bank need to expand geographically to accommodate a merger or acquisition then scaling up their data storage is seamlessly handled through the cloud. Furthermore, certain cloud solutions decouple storage from compute, so organisations only need to pay for when they are using a service.

At a time when data is rising exponentially, cloud technology has never been more important for the financial sector. It is allowing financial companies to leave behind antiquated legacy systems and develop a level of agility and scalability that is suited to the digital age and essential for retaining customers and attracting the next generation of banking customers.

About the Author

Matthew Glickman, VP of Customer and Product Strategy at Snowflake Inc. Snowflake’s cloud data platform shatters the barriers that have prevented organizations of all sizes from unleashing the true value from their data. Thousands of customers deploy Snowflake to advance their businesses beyond what was once possible by deriving all the insights from all their data by all their business users.

Featured image: ©VanHart