Cloud banking has become a buzzword for the global banking industry today, encompassing various solutions and services that are enabling them to reap varied benefits. But what about regulatory compliance? Here is an attempt to demystify the same. Benefits of Cloud Banking Cloud banking comes with several advantages that are worth noting. Some of them include: Key Cloud Deployment Frameworks When it comes to cloud banking implementation, there are several frameworks worth considering in this regard. Major Regulatory Guidelines Worth Noting Those looking for a gradual shift towards cloud banking can adhere to regulatory compliance provisions. Here are some of the guidelines worth noting in this regard. What Banks May Consider Regulatory compliance is crucial for banking institutions these days, in their adoption of cloud banking models. The above-mentioned frameworks and guidelines should be kept in mind accordingly. The cloud offers future-ready, scalable, and more agile infrastructure for adapting to evolving market dynamics, meeting changing consumer expectations, and lowering operational costs. However, compliance should always be at the forefront of any such activity. It means that the bank and its personnel abide by all the applicable regulations, laws, standards, ethical processes, and policies while functioning within cloud ecosystems. A compliance-linked philosophy at banks is the need of the hour, one that focuses strongly on properly defined control frameworks, policies, governance models, evolution, monitoring, and documentation of decisions. This will ensure that banks can flexibly and independently manage their vendors and ensure privacy and integrity while handling large data volumes. They can also gain higher control over outsourcing with better governance, while lowering the risks of lawsuits and other financial liabilities. Banks can build a compliance mechanism through identifying all external and internal stakeholders with a role to play in the enforcement of regulations and laws along with policies and standards. These stakeholders should be suitably managed for gaining a holistic view of compliance needs, costs, risks, and approaches. Internal stakeholders could be senior management teams, boards of directors, compliance, security, and legal teams, management and communications teams, enterprise and platform architecture teams, operations teams, and auditors. External stakeholders may include banking associations (national, regional, or global), along with regulators. Upon aligning all stakeholders, the process should be executed with well-defined IT and business measures and tasks. Here are some such steps that banks may consider: As can be seen, there are varied regulations that entities embracing cloud banking have to consider. Setting up an efficient internal management mechanism is the way forward for these banks, since cloud-based operations is only going to gain more traction in the future. FAQs How does cloud banking address cross-border data transfer restrictions imposed by some regulatory authorities? It may be addressed through creating a country-wise legal assessment of regulations and building a strategy to make sure that data-hosting measures have a locational aspect while building a global framework for hybrid cloud services. Adhering to these limitations will not restrict the ability of banks to deliver better services on the cloud, provided a country-wise strategy is in place. Can cloud banking help financial institutions meet Know Your Customer (KYC) and anti-money laundering (AML) compliance requirements? Cloud banking may help meet AML and KYC requirements, provided it adheres to specific regulatory mechanisms for verification and other processes as defined by authorities in particular jurisdictions. Can cloud banking solutions be customized to meet specific regulatory requirements in different regions? While customization may be possible, cloud services frequently distribute data throughout multiple regions and centers. It may lead to concerns regarding data jurisdiction and sovereignty. Hence, data may be required to be stored within particular geographic boundaries as per regulations and it may be a challenge at times. What are the potential penalties for non-compliance with regulatory standards in cloud banking? Non-compliance with cloud banking standards may lead to penalties being imposed on banking institutions. These penalties may go up to INR 50 crore depending on the level of non-compliance. What are the biggest challenges for maintaining compliance in cloud banking? Some of the biggest challenges for maintaining compliance in cloud banking include setting up the right systems of controls and tracking, along with keeping all stakeholders in sync regarding adherence to regulatory policies.
