Public cloud critical in the digital transformation of APAC financial services institutions

Giron discusses key findings from the Forrester study.

Financial services institutions (FSI) in the Asia Pacific region are under pressure to increase agility, improve efficiency and embrace digital transformation, Forrester Consulting research has found. However, many organisations in the sector lack a thorough understanding of cloud-related banking regulations, a key prerequisite in completely embracing and taking advantage of cloud computing.

Cloud is Critical to Digital Transformation in the Asia Pacific Financial Sector, a study commissioned by Microsoft, evaluated cloud adoption trends among FSI in the region, analysing the impact of regulatory compliance, security, privacy and reliability on current and future cloud initiatives.

FSI realise that they have to undergo digital transformation or be disrupted. New entrants into the industry are driving disruption in many different ways.

According to the study, FSI in Asia Pacific must increasingly embrace cloud computing in order to thrive, whether it is public or hybrid cloud models. In doing so, they must first understand cloud-related banking regulations, formalise internal cloud policies and implement best practices for engaging with cloud providers and banking regulators.

Frederic Giron, Research Director, Forrester Research noted that two years ago, CIOs and CTOs were saying that adopting cloud was too risky, and would rather keep the status quo. The definition of risk has changed. "New entrants are all leveraging cloud to drive disruption. The new risk now is not to do anything and keeping the status quo, (banks) understand now that they need to (change)," he said, noting that a separate Forrester study has shown the FSI sector embracing cloud faster than other sectors. "Cloud is increasingly seen as a key enabler of their digital transformation."

Rather than being used merely as a way to save on costs, FSIs now consider cloud as beneficial for speed and agility, as it enables faster implementation times; as a way to free up resources, so that they can move away from managing infrastructure to focus on more high value-added projects; as well as a means to embrace agile and continuous delivery, Giron said.

A key finding is that leading FSI in the region are using regulations to help steer public cloud initiatives. The better the firms' understanding of regulations, the more likely they are to embrace public cloud services. In most instances, these public cloud initiatives are directly tied to customer-facing digital banking capabilities like new customer acquisition and on-boarding.

"Today the attitudes toward implementing cloud and the related internal policies among FSI in Asia Pacific is clearly maturing as it is increasingly seen as an enabler of the organisation's journey to digital transformation. But it is important to realise that a cloud strategy can only be successful if there is a clear understanding of cloud-related regulations. As organisations' understanding of regulations increases, so too does their understanding of how and when to engage regulators and then in turn their readiness to adopt cloud solutions," said Jeff Bullwinkel, Associate General Counsel & Director, Corporate, External and Legal Affairs (CELA), Microsoft Asia Pacific & Japan.

Other highlights:

In both mature and high-growth markets, firms interviewed for the study illustrated a lack of regulatory knowledge, citing perceived restrictions to cloud adoption and usage that were not actually present in the regulations.

Defining strategies for engaging and interacting with banking regulators has become crucial. As firms' understanding of cloud regulations increases, so too does their understanding of how and when to engage regulators. Banks are reaching out to regulators more proactively and frequently to build relationship, establish trust and address potential compliance issues earlier in the process.

Cloud providers are viewed as an essential part of the banking ecosystem in most Asia Pacific markets. FSI expect cloud providers to actively engage regulators to help shape their cloud delivery models and practices, so that the proposed cloud initiatives will be compliant with local and regional regulations, thus being more likely to be approved and implemented.

Giron shared that beyond the top line findings that there is a continuum in attitudes towards cloud:

In Australia and New Zealand, digital transformation is pushing CIOs to change their stance on cloud approaches and benefits. The Australian Prudential Regulation Authority (APRA) is getting clearer, more open and willing to engage in a dialogue.

In Singapore and Hong Kong, things are "getting there" but not as quickly as in Australia and New Zealand. The cloud approaches there centre on cost reduction and improved agility. The Monetary Authority of Singapore for instance has been steadily evolving its thinking on cloud and improving its outbound communications, Giron noted.

Banks, regulators, and cloud providers have to work together to develop a cloud strategy, Giron said. In speaking to Australia and New Zealand respondents, it was found that:

Respondents felt regulators no longer think cloud is a dirty word.
They also said cloud vendors are "much more open than they used to be in terms of telling us where the cloud infrastructure is located".
The banks also said that their cloud policy had evolved from 'don't do cloud' to 'here's what you need to think about and plan for in order to consider leveraging cloud'.

In Japan and South Korea, on the other hand, understanding of cloud is more conservative. Respondents think of it mainly as private cloud implementations, or server virtualisation, and IT decision makers believe control means better efficiency. There is also a reluctance to engage regulators.

"Technology organisations in Japan don't understand what cloud is and hide behind fact that 'regulators don't allow us to do cloud', nobody is willing to go to the regulator to say we have to develop this cloud strategy," he said.

For Indonesia, Malaysia and the Philippines, there is a wait-and-see atittiude for most banks, with respondents preferring to wait for clear guidelines. Meanwhile, regulators vary in transparency of guidelines.

*The study was conducted from November 2015 to February 2016 and involved in-depth interviews with 34 senior IT decision makers in the Asia Pacific financial service sector from Australia, Hong Kong, Korea, Malaysia, New Zealand, the Philippines, Indonesia, Japan, and Singapore. Forrester found that these organisations are at very different levels of maturity in cloud understanding and adoption.