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Regulators need to respond as banks go digital

Author: ICAEW Insights

Published: 04 Apr 2022

The pandemic undoubtedly saw a boom in adoption of digital banking. Now, although customers might not notice it, a bigger change is afoot.

Some of the largest banks in the world are investing billions of dollars in 2022 in a wholesale overhaul of their creaking legacy financial infrastructure. The goal is to bring about a distributed, cloud-based future for banks’ most important asset: their customers’ data.

Fintech challengers such as Starling and OakNorth Banks have been fully hosted in the cloud since their early days, enabling them to grow rapidly and win millions of customers. But now more and more established large banks are joining the trend.

In fact, more than two-thirds (67%) of banks think they will lose market share within two years if they fail to digitally transform, according to a report last year from cloud banking platform provider Mambu. More than four in five (82%) say they now have a clear strategy for adopting the cloud.

While few disagree that digitalisation of core systems is not only necessary but also advantageous, some believe financial regulators need to think carefully about how best to oversee this new cloud-based era.

Travers Clarke-Walker, Chief Commercial Officer at Thought Machine, says the UK regulator must devote more and more of its attention to the ‘unknown’ in financial services.

“The financial services ecosystem is evolving rapidly, and new technologies and approaches to finance are proliferating that barely existed a year ago. For the regulator to keep up to speed, and fulfil its duties as a balanced champion of financial services innovation and consumer protection, it must continue to engage with key players and consumers,” he said.

For regulators, trying to catch up with the trend, and threats and risks that might arise from the wholesale move to online, Clarke-Walker says, are more complex.

“If anything, any risk of moving online is mitigated by the added assurance of a technology infrastructure provider’s impeccable record of maintaining the security of its assets and their commitment to security,” he said.

Read a more detailed article, How Best to Regulate the Bank Cloud Boom?, from the Financial Services Faculty.