Data outsourcing: stigma and security

Funds Europe speaks with industry experts about the future of data outsourcing in the funds industry for our June issue.

The rise of pay-per-use public cloud services like Microsoft Azure and Amazon Web Services has seen a boom in the outsourcing of core technology functionalities. It brings down the large cost of owning and operating hardware, as well as the expense of maintaining systems in data centres. 

According to Morningstar’s Tony Gillett, director for emerging capabilities, Emea, outsourcing is “very much in vogue”.

“No self-respecting fintech company today is likely to be spending hard-won capital on hardware when it can rent it in a scalable way that keeps their CFO happy, not to mention their investors,” he argues. 

Banking and shadow banking sectors have been slower to adopt the use of cloud technology in favour of retaining complete control over their IT – but in recent years, this has started to change. 

“The benefits of outsourcing have become more undeniable, so the trend has reached even traditionalists such as the City’s asset management firms,” says Gillett. “Nevertheless, there perhaps remains a certain stigma associated with admitting that core technology functions have been outsourced.” 

One reason is cyber security, which has become increasingly important in the pandemic. A CoreData report in February found that nearly six in ten institutional investors say a cyber security breach is a reason to undertake an unplanned review of a mandate. 

Using cloud technology, sensitive data can be accessed from any location. This has in turn prompted change in the industry as cyber security strives to stay ahead of cyber crime. 

According to Jan Nießen, portfolio manager at Union Investments, the rising prevalence of cloud computing has been accelerated by the current crisis. “Traditional approaches to security such as the use of firewalls to protect company data are less effective, and new approaches like identity and access management are emerging,” Nießen says. “The biggest challenges of using cloud computing technology for companies are related to security.”

Security was the main reason for the slow adoption of cloud technology in the financial world. Meanwhile, regulators have struggled to understand the remaining risks in the cyber world.

Various regulations such as the Cloud Act in the US and its equivalent in Europe aim to secure cloud technology by securing the location of physical servers, managing the cryptographic keys used to protect the data and encrypting the flows of information between final users and data centres, according to Yvan Mirochnikoff, head of innovation and digital transformation at Societe Generale Securities Services (SGSS).

“Today, multiple audits have shown that there are ways to manage such a cloud environment in a more stable and secure way,” he says, pointing out that SGSS now stores 80% of its data in the cloud – “preferably in public clouds which are suitably secure”.

Read the full article from the June issue here.

© 2020 funds europe



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