The dominance of a limited number of cloud service providers in the financial sector raises concerns about operational resilience and the negotiation leverage these vendors hold over smaller financial service players, according to a report from the US Department of the Treasury.
The report indicates that while cloud services can enhance resilience and security for financial institutions, significant challenges could diminish these advantages. In response, the Treasury has initiated an interagency cloud services steering committee aimed at improving cooperation between regulatory bodies and the private sector.
Current market dynamics are heavily concentrated among a few providers—namely Amazon Web Services, Google, and Microsoft Azure. This concentration means that an incident affecting one provider could simultaneously impact multiple financial sector clients. The report notes that similar concentration exists in banking, securities, and insurance markets. Regulators must address considerable data gaps to evaluate how the sector might be impacted by such incidents.
Furthermore, the dominance of these few providers may grant them excessive bargaining power, potentially disadvantaging smaller financial institutions during contract negotiations. Community banks have expressed concerns about not receiving adequate information regarding incidents or outages that affect their systems. This lack of transparency hampers their ability to understand the risks associated with cloud services, making it challenging to establish robust technology architectures that protect consumers adequately.
While the Treasury acknowledges that cloud service providers (CSPs) already share significant information with financial institutions, it emphasizes the need for improved information sharing to strike the right balance. Additionally, many institutions have voiced worries that a cyber vulnerability or incident at a single provider could trigger a cascading effect across the broader financial sector.
Lastly, the talent pool for cloud services is currently "well below demand," necessitating providers to increase employee engagement and enhance supportive technological tools and adoption frameworks.
For more insights, you can access the full report here.
Finextra has recently launched the inaugural Financial Cloud Summit, set to take place on March 2, 2023. For more information and to register for this event, please visit the event page here.