Investment technology subsidiary of BNY Mellon, Eagle Investment Systems, recently announced the launch of its partnership with Microsoft, fitting in to the wider trend of harnessing cloud technology to comply with regulations and improve cost-to-income ratio.
The cloud has seen a quiet revolution in financial services, with industry perception moving away from the skepticism of five years ago, to many present day migrations of non-core systems into the cloud.
According to an Objectway and Compeer report, some 70% of wealth managers surveyed stated that their first priority was investing in new technologies. The report also claimed that the industry average cost-to-income ratio in 2016 was 24.7% while 57% of respondents were within a cost to income ratio of 20-39%, a clear improvement on 2016 and 2015 (22.3%).
Similarly, the investment and wealth management sectors have seen something of drive to digitise in recent years following a squeeze on quality of service by recent regulations - MiFID II undoubtedly topped the list.
Conversely, regulation may be forcing through greater adoption of the cloud and other emerging technologies.
“Our aim is to avoid imposing inappropriate barriers to firms’ ability to outsource to innovative and developing areas, while ensuring that risks are appropriately identified and managed,” reads FG 16/5 of the FCA handbook, introducing the framework around regulating cloud outsourcing.
“Using the cloud can provide more flexibility to the service that firms receive, enabling innovation and bringing benefits to firms, their consumers, and the wider market,” says the FCA, which launched Project Innovate to foster innovation and effective competition by removing barriers to cloud usage in 2014.
“Public cloud solutions are increasingly becoming accepted within financial services as clients are looking for additional flexibility with data centre locations and configuration of best of breed solutions,” says Steve Taylor, chief technology officer at Eagle.
The attraction of using cloud technology in the financial sector is also something Janet Lewis, vice president of global financial services at Microsoft has seen: “We’re seeing strong cloud momentum and growth within the industry and are excited about the potential for the future. 90% of the world’s global systemically important financial institutions are Azure customers.”
But the attraction of cloud agility also makes the fintech market rich pickings for the tech giant. Microsoft recently announced that Saxo Bank would run its entire banking platform on Microsoft Cloud while “born in the cloud” ClearBank was founded on cloud principles. Nick Ogden, executive chairman of ClearBank, commented that the choice to go with cloud capabilities was down to moving away from legacy batch processing towards faster and more secure core computing.
But for all the agility and security the cloud can provide, Lewis is quick to point to how the technology can help comply with increasingly more stringent regulation: “We engage with regulators in key markets to share information about our services, the related controls and our approach to enabling customer compliance. True hybrid cloud allows firms to scale up or down at a moment’s notice and helps address customer requirements around industry regulations.”
While new regulations are actively prompting new technological trends to cope with them, Taylor from Eagle also has an eye on a proactive approach to the future.
“We are excited to leverage the expertise Microsoft can provide above and beyond cloud, such as in machine learning to bring a new level of data quality and analytics.”
But Taylor also notes that they’ve developed their capabilities in such a way that it does not exclude them from working with other providers or in other technologies: “We currently develop and build all of our technology in a cloud-agnostic manner and fully intend to work with other leading cloud providers based on client preferences and guidance.
“We see cloud as an important catalyst and at this time believe it is making a bigger impact than any one technology. We do believe that blockchain is an exciting technology and that it holds tremendous opportunity,” says Taylor, although he declined to comment on what the technology’s impact would be on the wealth management sector.
“Financial services providers are seeking this expertise - in cloud, security, AI, quantum computing and blockchain - and leadership in those areas including companies like UBS, Bank of America, HSBC, MetLife and TD Bank just to name a few,” says Lewis explaining how Microsoft intend on positioning themselves within fintech.
“Our ambition is to partner closely with these firms, helping them achieve their business goals by using Microsoft technology, rather than create businesses that compete.”