SWIFT Operations Forum Wrap-Up
Financial services firms should expect more regulatory scrutiny as they advance their usage of cloud computing, says Christopher C. Remondi, a managing director at Brown Brothers Harriman & Co. (BBH). Remondi, the global head of BBH’s systems and technology division, made his comments at the SWIFT Operations Forum – Americas conference in New York last week.Regulators are likely to make a review of a firm’s cloud computing activities a part of their due diligence efforts, Remondi says. BBH uses cloud computing for a test-bed facility, a proprietary trading system and a human resources platform. “A regulator specifically asked me, ‘What do you have in the clouds,’ ” he says.
With so many regulatory and compliance issues to face, financial services firms are likely to adopt cloud computing incrementally, lagging behind other sectors, Remondi says.
While added scrutiny may discourage some firms from moving to the cloud, regulators might spur greater acceptance of the technology if they provide some clarity on the subject, says Adam D. Honoré, research director at Boston-based market research firm Aite Group. Honoré’s comments were part of a recent Q&A for Financial Technologies Forum’s online newsletter.
When asked what is holding back the acceptance of cloud computing, Honoré pointed to concerns over privacy and data, and a lack of response from regulatory agencies. “If the SEC came out with an acceptable cloud usage ruling, it would increase adoption,” he says.
Remondi took part in a conference session with Michael Fish, chief information officer, head of information technology and operations for the SWIFT consortium, where they focused on “the good, the bad and the ugly” aspects of cloud computing.
While Remondi and Fish think that cloud computing has legs, they say there is too much hype surrounding cloud computing. The 2011 Superbowl even featured an ad about it. “The snowball has become an avalanche in terms of publicity,” Fish says.
Fish adds that any association with the cloud helps the bottom line. SWIFT, for instance, has reminded its users that it, too, is an example of cloud computing. “We only recently claimed to be a cloud,” Fish says of SWIFT’s services for consortium members.
Cloud services are becoming available in three main flavors—infrastructure as a service, platform as a service, and software as a service, Fish says. The pay-as-you-go flexibility of cloud computing can help firms bring down some of the capital expenses.
“A regulator specifically asked me, ‘What do you have in the clouds?’ ”
— Christopher C. Remondi, global head of BBH’s systems and technology division
Firms should set aside the hype and do a solid analysis before they jump onto the cloud, Remondi says. For instance, when BBH is deciding on a project, it involves the compliance team, works to assess risk levels for client data, and does not put BBH’s offerings on shared hardware. Security is also a major concern and a human resources system that’s offered via the cloud is arguably the firm’s riskiest to date because of the employee information contained in it, he says. “We take security very seriously,” he says.
Institutions face major hurdles to cloud computing such as knowing at all times where data resides, how to maintain control over the cloud and the best methods for encrypting data. “I don’t think all of those questions have been answered yet,” Remondi says. “Would we put core banking systems in the cloud? I don’t know. That’s a pretty big leap.”
While SWIFT has used virtualization technologies to bolster its FIN messaging and SWIFTNet services, it will not be putting its mission critical systems in the cloud either. “I can’t conceive of doing that today,” Fish says.
When asked by Fish if BBH’s IT staff feared the cloud could hurt their jobs, Remondi says that his staff was more concerned about offshoring. “But even that’s a non-issue,” he says. The ones to be concerned are the “bulge bracket” vendors that deliver software, hardware and services via a conventional business model that is threatened by the cloud.
“Is the cloud what the PC was to DEC and Wang?” asks Remondi, referring to the undoing of the minicomputer industry by the emergence of the personal computer. The now defunct Digital Equipment Corp. (DEC) and Wang Laboratories were once the lead suppliers of minicomputer systems—systems that challenged IBM’s mainframe dominance. The PC revolution eventually overtook the minicomputer players.
The conference featured several sessions where Swift officials highlighted its offerings for key areas such as corporate actions and securities processing, and spotlighted innovations such as the future of money.
In an overview of the Issuer to Investor project, initiated by SWIFT, DTCC and XBRL, SWIFT officials said the key to getting issuers to adopt XML to tag their prospectuses is to make it easier for them. When asked by session participants about the impact upon data vendors, SWIFT officials said that while automation might eliminate the need for data scrubbing services, the data suppliers could provide tagging services as well as middleware offerings to help issuers transition to XML. Officials also report that SWIFT has projects underway in Japan where participants have to transition from incumbent systems. By contrast, China represents a greenfield opportunity for the SWIFT projects there, officials report.
SWIFT officials also outlined the eight new MX Messages that it has developed for proxy voting, and which are available for testing and piloting via closed user groups. Officials report that there is a proxy voting implementation underway at HSBC in Hong Kong in conjunction with Broadridge Financial Solutions whose proxy voting services are available via SWIFTNet. A Broadridge official at the session reports that the MX messages are transferable to mobile deployments.
Other sessions reviewed SWIFT and the DTCC’s joint effort to provide Legal Entity Identifier (LEI) services, repo transaction automation, and collateral management. SWIFT is looking to develop pilot tests of its collateral management messages.
SWIFT also had many forward-looking sessions that included speakers who focused on the changing nature of money.
Venessa Miemis, director of the Foresight Education and Research Network, previewed a not-too-distant future where virtual currencies similar to Facebook credits, available now, will be more prevalent. Facebook credits, paid for via credit cards, PayPal or mobile phones, are used to buy virtual goods in Facebook games and apps. They are available in 15 currencies and in more than 90 countries. Mobile access to virtual currencies will blur the lines between online and offline activities, and may invite regulatory scrutiny, says Miemis, who is also a Fellow at the New School for Social Research. This parallel economy will need effective ways to authenticate and verify endusers’ identities, she says.
Along those lines, another speaker, Brian Zisk, executive producer of the Future of Money & Technology Summit, says that financial transactions will become even more mobile, citing the VeriFone PAYware Mobile payment solution for the Apple iPhone that provides credit card processing capabilities via the smartphone platform. There will be a problem, though, with a future mix of virtual money, online credits and real money. The currency conversions among these different modes will be very complex and not as seamless as some have suggested, Zisk says.
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