Data privacy is the topmost priority in the financial sector. With strict compliance and complex requirements for financial institutions, cloud computing can offer great help. Many financial institutions already use cloud computing and many more are planning to employ them shortly as the cloud can help them meet the ever-expanding regulatory requirements. Cloud computing also offers several other key benefits for financial institutions including agility, cost savings, advanced data analytics, improved collaboration, and more.
How do cloud services reduce a financial institution’s responsibilities for security and compliance?
A financial institution can never completely transfer or avoid liability for compliance risk. But it can transfer some compliance-related activities to the cloud. When a financial institution moves to the cloud, the responsibilities for infrastructure and physical controls are transferred to the cloud service provider. These responsibilities include:
- Maintaining infrastructure security compliance
- Disaster recovery planning and testing
It does not mean that the financial institution gets rid of all the responsibilities but the responsibilities are shared by the service provider and the institution under a shared responsibility model. The level of responsibility of the financial institution can decrease depending on the method of cloud deployment. The SaaS (software-as-a-service) model transfers the most responsibility, PaaS (platform-as-a-service) transfers a little less responsibility, while the IaaS (infrastructure-as-a-service) model transfers the least amount of responsibility to the cloud service provider. The service provider and the financial institution need to have a detailed record of their responsibilities for each.
Best practices for financial institutions to satisfy regulators’ requests when using cloud services
Regulators need to understand and accept the third-party risk assessment process of the financial institution. Here are some things to keep in mind.
- The financial institution needs to notify about the third-party service relationship with regulatory agencies within a specific period. This notification needs to mention the description of services. In the United States, you need to notify the FDIC and the SEC within 30 days of signing the contract.
- A financial institution should have a clear understanding and description of the risk assessment process, request for proposal, stakeholders, and the processes for gathering responses and analyzing the information. It should also include a description of the process for selecting the vendor.
- Other than reporting requirements of using a cloud services provider, certain reporting requirements such as cybersecurity regulations for financial institutions need a certificate that confirms compliance once a year.
- The service-level agreement, methods for monitoring compliance, and the risks associated with non-compliance of the service-level agreement by the vendor must be assessed.
- The cloud service provider can provide a consolidated control view on a dashboard that can streamline the efforts to meet the reporting requirements of the regulators, board members, and senior management.