Out-Law News 2 min. read

Financial services in the cloud, more IT failures and taking on the FSA's adviser charging stance


John Salmon's Financial Services blog

Financial services sector head John Salmon brings you insight and analysis on what really matters in the world of financial services.

Talk of the financial services sector increasing its take up of cloud solutions has continued over the last few weeks with Amazon becoming the latest provider to advocate industry certifications and independent third party attestations as a solution to cloud compliance concerns.

Compliance uncertainty for businesses operating within the EU however remains and seems to be boiling down to four key concerns – data security; the practices of foreign regulators; keeping track of the exact location of data, and auditing - both in terms of a customer's obligation to audit and its arrangements for facilitating regulators in exercising their auditing powers.

The perception has been for some time that cloud providers are unwilling to negotiate or address EU-centric concerns. The message from the UK regulators though is clear – they do not have room to move and must give EU derived financial regulatory rules their intended effect.

The ICO has told Out-Law.com that third party certifications are not sufficient in themselves as to guarantee compliance with EU data protection requirements and we anticipate that the FSA will take a similar view in relation to material outsourcing.

Structuring arrangements so that regulators can have some form of effective access to data and business premises therefore remains a necessity, not as a consequence of any view taken by the FSA, but of the wording of EU legislation. The challenge may be for cloud providers to strengthen the evidence for drawing a distinction between effective access to data and effective access to premises and in campaigning for a change in the law.

For those interested, in the coming weeks we will be releasing on Out-Law.com a more in depth analysis of the cloud related issues facing the financial services sector.


IT Failures 

Yet another financial sector IT failure has been in the news, this time one that affected advisers – a brief outage hitting Avelo's exchange portal, which offers intermediary services including product comparisons and real-time product quote and commission information. The FSA for its part has responded to earlier IT failures in the industry by calling on banks to identify specific weaknesses and detail efforts to prevent failures in the future.    

News of IT failures are a reminder that the financial services sector is a technology based industry and that outages, software glitches and data breaches must be reviewed in terms of failures in management to articulate connections between technology, business risks and effective controls and processes.


RDR

In RDR news, following on from our discussion in last week's blog, Ashley Wassall has taken the view that the FSA's "cross-subsidy crackdown is an affront on business." Ashley reasons that in every other industry businesses cross-subsidise unprofitable parts and questions whether the reasoning of the FSA really is promoting the client's best interests.

The FSA, as we noted last week is suggesting that "things like IT costs, marketing budgets, property charges and costs relating to business development" must be taken into account in calculating adviser charges.


Reducing IT costs

Finally, it has been reported that trading platforms have taken a step forward and agreed to a common set of technical standards for trading swaps. The development means that investment banks no longer will need to create custom-built platforms in order to connect to trading venues.

It has been suggested that the US Dodd-Frank Act has been leading the way for the global swaps market to be traded electronically in order to safeguard the financial system. While electronic trading may add safeguards to the financial system, the FSA is conscious of the increased risk and set to improve its surveillance technology in order to counteract market abuses arising from high speed algorithmic trading

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