Cloud Sourcing and Mitigating Concentration Risk in Financial Services

With the increased adoption of cloud services, the resilience of cloud providers is paramount to not only the firm, but also to the stability of the financial sector. Method: We use a “mixed” method of research by using a combination of data ranging from the UK regulator regulatory data and information from the public domain, supported by interviews with technology risk specialists at the FCA. Conclusion: This research acknowledges the strategic role of information systems and recognises the key advantages that cloud providers can bring to financial firms. Most firms are keen to leverage these benefits, by adopting “cloud” into their future IT strategy. However, we find that this may lead to increased reliance on key service providers, thus leading to concentration risk. We also find that lack of supplier due-diligence and interoperability standards between providers can be significant contributors to this risk. This research then arrives at three aspects—availability concerns, cyber-attacks and contractual issues, which could constrain the ability of service providers to provision contracted services—that could potentially cause detrimental effects across the financial sector. Before concluding, we look at factors that could mitigate this risk and the increasing role of regulators, firms and service providers in this endeavour.