Bank of England Warns Financial Sector Over Reliance on Cloud Computing

The Bank of England sounded a warning this week about the increasing reliability of cloud computing across the financial sector. Carrying out its latest Financial Stability Report, the Bank said that Britain’s banks moving of their administration and accounts into the cloud “could pose risks to financial stability”

It stated that it has seen an increasing trend over the last 18 months of banks and financial firms outsourcing services to cloud computing companies, primarily the likes of Amazon, Google and Microsoft. In the report, the Bank said: “Since the start of 2020, financial institutions have accelerated their plans to scale up their reliance on CSPs [cloud service providers].

“The increasing reliance on a small number of CSPs and other critical third parties could increase financial stability risks without greater direct regulatory oversight of the resilience of the services they provide.”

Moving into the cloud

Commenting on the report, the Bank’s deputy governor, Sam Woods, said: “This is no longer something happening around the periphery of banks’ systems – for instance with HR systems.
“What we now have moving [into the cloud] are things which are much more integral to the running of banks, which could go to safety and soundness.”

This warning over the risk of relying on such a small number of providers for such a vast amount of data and services comes just a month after the mass global outage caused by US cloud computing service provider Fastly.

Fastly’s outage caused a number of the world’s biggest websites to go down, including Twitter, Spotify and Reddit, highlighting how crucial a small group of CPS companies are to running the internet.

The Bank’s warning over cloud computing was just one of several laid out in its latest survey of the financial system. It said that some asset prices “appear elevated relative to historical levels”, suggesting a “search of yield in a low interest rate environment and higher risk taking” were to blame, as well as high housing prices and rising corporate debt.

The Bank of England stated that, despite these concerns, that it was removing the COVID restraints on banks paying dividends. The return of bank dividends, which have been curbed for 16 months, marks a major point in the UK’s emergence from the financial impact of the coronavirus pandemic. However, dividends are not expected to return to pre-2020 levels until 2025.

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