FINRA: Cloud Adoption Is Likely To Remain Robust

Cloud computing is increasingly seen by many firms as an important architectural component to their infrastructure, according to a new research report from FINRA.

The report, “Cloud Computing in the Securities Industry,” was issued by FINRA’s Office of Financial Innovation (OFI), following a review of nearly 40 market participants to better understand the implications of cloud computing on the securities industry. 

According to the findings, a diversity of cloud computing models is transforming how broker-dealers operate, with the potential to enhance agility, efficiency, resiliency and security within firms’ operations, while also highlighting the importance for firms to consider relevant regulatory factors for maintaining investor protection and market integrity.

“This report is intended to serve as a tool for our member firms and other industry stakeholders by providing information to help them learn from the experiences of others. In addition, it provides useful insights regarding the challenges and benefits associated with implementation of a cloud computing framework, from both an operational and regulatory perspective,” said Haimera Workie, Head of the Office of Financial Innovation and Senior Director at FINRA. 

Broker-dealers are at various stages in their cloud computing journey, according tot the report.

“As broker-dealers are at various stages in their cloud computing journey—from full or partial integration, to pilot projects or not at all—many firms are seeking to explore how these technologies can be used to personalize customer experiences, analyze larger amounts of data faster and increase their competitiveness in areas of rapid innovation.”

Firms identified their size, business focus, existing IT infrastructure, and firm culture as some of the factors that influence their path to implementing cloud computing.

For firms that have already begun the cloud adoption journey, many reported having benefited from features such as: cloud-based productivity and collaboration tools (particularly at the onset of the Covid-19 pandemic when remote work surged); cloud-based applications that permit the streamlining of databases; data analytic applications that can accommodate computationally- intensive calculations that may spike with market volatility or increased trading activity; and new automated workflows and cloud-based tools that enable a greater ability to quickly launch products and innovate, including through the use of technologies, such as machine learning and other forms of artificial intelligence.

Firms have also identified certain challenges they faced during their cloud migration, including: developing the appropriate protocols and skill base to facilitate establishing and maintaining cloud security; sufficiently changing organizational processes and firm culture to take advantage of the offerings presented by a cloud platform (e.g., viewing technology use as a variable expense instead of a fixed capital cost and taking advantage of the ability to scale up and down quickly to innovate); and limiting the potential for vendor lock-in risk with a cloud provider.

“As adoption of the cloud continues to grow, firms are finding clear benefits, but also potential challenges,” Workie said. 

According to FINRA, there are several regulatory implications that firms may wish to consider when establishing a presence in the cloud. 

“It is important to keep in mind that although a firm may shift its technology infrastructure to a cloud environment, all of the regulatory requirements that are applicable in an on-prem environment continue to apply.” 

Regulatory factors for those operating or migrating to the cloud to consider include: cybersecurity, data privacy, outsourcing/vendor management, business continuity, and record-keeping.

FINRA requested comments on the report by October 16, including areas where guidance or modifications to FINRA rules may be desired to support cloud adoption while maintaining investor protection and market integrity.

“We encourage broker-dealers to conduct their own assessments of the implications of cloud computing, based on their business models and related use cases, and share those learnings with us,” Workie said.