February 1, 2022 | Stamford, CT — Banks’ need to modernize technology infrastructure to accommodate new regulations and a shift to digital channels by clients are tempering past hesitations and driving the industry to the cloud. 
The implementation of sweeping new rules like the Fundamental Review of the Trading Book (FRTB), coupled with the onset of the COVID-19 pandemic, has created a unique opportunity for banks to rethink their architecture and risk management process.

“A perfect storm of decentralized working conditions and the rigorous demands of the new rules has risk teams rethinking legacy systems and on-premise deployments to keep up with an evolving regulatory and work-culture environment,” says Audrey Blater, Senior Analyst for Coalition Greenwich Market Structure & Technology and author of Risk Management Drives Cloud Adoption, with Some Help from the Pandemic.

Cloud and Proud
While many retail service and solutions providers have boasted a bevy of new user-friendly, cloud-enabled applications, the sell side has yet to fully embrace a ‘cloud and proud’ approach. However, following months of relatively widespread cloud adoption by banks during the pandemic, more than two-thirds of sell-side risk managers in a recent global study now say their organizations consume cloud-based data. Almost 90% of the banks currently using cloud-deployed market-data services intend to consume more in the next 12 months. 

While there are many clear advantages to cloud technology, existing tech, bank culture and the size of the firm will influence the speed of future adoption. Banks with a modern infrastructure capable of connecting numerous departments with data sourced across the organization are in a better position to deal with the rigors of new rules like FRTB. Meanwhile, many tier 2 and tier 3 firms will stick with legacy providers and on-premise systems due to a lack of resources, a dearth of talent necessary for managing cloud deployments, and difficulties making the business case for investment in new technology.

“Coalition Greenwich sees FRTB as a catalyst for long-term change for those banks that wish to take the plunge into cloud technology,” says Audrey Blater. “Institutions that only look to outsource FRTB’s calculations without taking a long, hard look at their risk management process will likely become less competitive—a dynamic set to play out in the next two to three years.”