Diversity of cloud computing models offers challenges and opportunities for broker dealers according to FINRA report

Haimera Workie, Head of the Office of Financial Innovation and Senior Director at FINRA.

A diversity of cloud computing models is transforming how broker-dealers operate, with the potential to enhance agility, efficiency, resiliency and security, according to a new report – Cloud Computing in the Securities Industry – from the Financial Industry Regulatory Authority (FINRA).

The report reviewed nearly 40 broker dealer firms, cloud service providers, industry analysts and technology consultants.

“This report is intended to serve as a tool for our member firms and other industry stakeholders by providing information to help them learn from the experiences of others,”  said Haimera Workie, Head of the Office of Financial Innovation and Senior Director at FINRA. “In addition, it provides useful insights regarding the challenges and benefits associated with implementation of a cloud computing framework, from both an operational and regulatory perspective.”

He added, “As broker-dealers are at various stages in their cloud computing journey—from full or partial integration to pilot projects or not at all—many firms are seeking to explore how these technologies can be used to personalize customer experiences, analyse larger amounts of data faster and increase their competitiveness in areas of rapid innovation.”

There were several common themes. For example, the use of Software as a Service (SaaS) products was prevalent, particularly among smaller firms which use off-the-shelf SaaS cloud products for non-core business functions, such as email systems, customer relationship management, financial accounting and human resources operations.

The report also found that rollouts of cloud infrastructure tended to be targeted, incremental and iterative Firms adopted a measured approach instead of launching a wholesale migration of the business to the cloud.

In addition, governance, cloud security, and training are a major focus for broker-dealers as they look to safeguard data and systems, often leveraging enhanced security protocols in the cloud environment.

The report also noted that organisation and cultural changes often accompanied cloud adoption. It often coincided with firms’ reassessing their areas of technology expertise, frequently with existing staff being re-trained or acquiring new staff with cloud expertise.

“As adoption of the cloud continues to grow, firms are finding clear benefits, but also potential challenges,” said Workie. “We encourage broker-dealers to conduct their own assessments of the implications of cloud computing, based on their business models and related use cases, and share those learnings with us”,

In terms of regulatory challenges, cybersecurity, data privacy, outsourcing/vendor management, business continuity, and recordkeeping were cited as the main issues for broker-dealers operating or migrating to the cloud.

Specifically, this means ensuring their systems are appropriately configured for security on the cloud.

Broker-dealers also need to update their policies and procedures related to customer data privacy as the cloud leads to changes in how it collects, stores, analyses and shares sensitive customer data.

©Markets Media Europe 2021

 

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