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Why it’s time to stop debating cloud in capital markets

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By Mark White, Senior Manager – Financial Markets and Fintech, Telehouse.

It’s a well-known fact that the finance sector has historically been hesitant in its adoption of cloud computing technology. Over the years, we have seen financial institutions struggle to define their cloud strategy, resulting in organisations not achieving objectives and delaying further attempts at deploying cloud services. However, the impact of Brexit and the Covid-19 pandemic, combined with the need to rapidly transform operations, has put cloud migration back on the agenda.

As the finance sector races to digitally transform, capital markets face pressures to become more agile. Current reliance on legacy IT architecture is putting them at a competitive risk from fintech and techfin giants, many of whom are now cloud native. And perhaps more worryingly, it is slowing wider growth and innovation.

As such, it is time to stop debating cloud adoption, and instead address the common challenges, enabling capital markets to implement the right strategy and fully benefit from what cloud has to offer.

Taking security out of the equation
The cloud has brought numerous advantages to the financial sector across many areas, including security, service, innovation and scalability. Cloud has even been attributed with helping grow the sector’s forecasted compound annual growth rate of 23.84%.

However, for capital markets, two of the biggest concerns still remain compliance and security. Infrastructure needs to be PCI, EBA and FCA compliant and data safeguarded from growing cyber-attacks. With high volumes of valuable and sensitive data shared between investors and corporations, many have worries about putting data in the cloud due to lack of control and fears it could be vulnerable to a data breach.

Yet, security has moved on leaps and bounds since cloud first arose. From data encryption to zero trust verification and access control, many of the risks that traditional on-premise IT infrastructures present are being mitigated through cloud computing in financial services. Providers also ensure regular software and hardware updates to further reduce cyber security risks and forbid any unauthorised access.

In fact, it could be argued that keeping infrastructure on-premise has greater risks than the cloud. For those applications and systems that simply do not want to migrate to the cloud, colocation could be a good option.

Think about the bigger picture
Another common concern with cloud is that it can be expensive, with many capital markets participants unable to justify the investment. However, this view often focuses only on the up-front costs and ignores the long-term cost efficiencies that cloud can offer. The cost of hosting data on-premise and maintaining servers will only continue to increase considering ever-growing volumes of data and storage requirements.

At the same time, unplanned downtime, which is more likely to happen with on-premise systems than cloud, can bring very high costs, revenue loss and additional expenses for repairs, providing a strong argument for moving away from legacy systems. Cloud infrastructure allows capital markets to scale quickly and easily, and in a far more cost-effective manner than with traditional on-premise infrastructure.

Using colocation as a stepping stone
As the industry evolves, capital markets’ ability to become more resilient, innovative and agile is dependent on having the right IT infrastructure. For many, cloud is the answer, enabling organisations to respond and adapt quicker to change, improve competitiveness and accelerate innovation.

The challenge, however, is how to take advantage of scalability and flexibility benefits of cloud without compromising security or compliance. Adopting a full public cloud approach is unrealistic, even if new entrants may be cloud-native.

Many are turning to colocation as the answer; recognising that cloud adoption does not have to be an ‘all or nothing’ approach. Rather than leaping head-first into public cloud, colocation can provide a hybrid approach, enabling capital markets participants to begin to connect disparate parts of hybrid IT structures to the cloud as and when they’re ready.

Not only does colocation offer huge benefits in terms of physical security – in particular, multi-layer security provision with trained staff on call 24/7, electronic access management, access control systems and CCTV – it can also provide access the to the partners, services and low-latency connectivity needed to build a strong foundation in the cloud.

The key to success is choosing the right partner, one that can provide access to an ecosystem of cloud directly from the data centre. This will enable capital markets participants to benefit from their own connected cloud exchange with fast connectivity and predictable and scalable bandwidth.

A cloud future
As pressure increases to digitally transform, capital markets firms are forced to think about their IT architecture and how they can reduce costs and become more agile and responsive. With data being the lifeblood of the industry, cloud offers the promise of storing, managing and accessing huge volumes of data securely, cost-effectively and autonomously, from anywhere and at any time.

However, with stringent security and compliance requirements, going cloud-first straight away is not the answer. By using colocation as a valuable stepping stone to ease the migration path, firms can connect with cloud providers within their chosen data centre. This will enable them to deploy key applications in the cloud that make back-office functions cheaper to process, while building a flexible foundation for future growth.

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