When it comes to risk management in banks, cloud-based computing offers significant advantages. On the other hand, risk managers will have a tough time making the switch from on-premises to the cloud.
Why risk management must need cloud?
Banks may use cloud computing to better handle financial and non-financial risks, including credit, market, and liquidity risks.
Cloud computing has the potential to provide significant advantages at a time when risk management executives are being expected to analyze larger quantities of data in shorter periods of time—often while working under tight budgets and personnel limitations. It may assist risk teams in responding quickly to changes in the external environment as well as delving deeper into the analytics life cycle.
Taking charge of the transition
Even though the potential advantages of cloud computing are significant, the difficulties associated with moving risk management systems and activities from on-premises to the cloud are also significant. Organizations responsible for risk management must prepare to deal with complexity, allocate the required resources, and fulfil the demands for new skills and a new culture.
The majority of risk management systems do not operate in a vacuum; rather, they are integrated with the bank’s core applications and operations. Consequently, shifting risk applications to the cloud may have ramifications for other systems and may need the restructuring of other programmes in the long run.
It is thus necessary to plan for the risk application migration trip as part of the overall business migration, which would include hundreds of apps in total. In certain cases, businesses have created a private cloud, in which computer resources are housed on a network that is only utilized by that organization and is situated inside the company’s own data centre. Others have chosen a hybrid strategy that combines this technique with a public cloud hosted by a large provider.
Moving to the cloud will have a major effect on financial statements
Although the legacy technology systems on which banks rely often incur maintenance costs, the depreciation charges associated with these systems are low. Despite the fact that most cloud providers provide incentives for multiyear contracts that may mitigate near-term migration costs, significant expenditures will still be incurred and added to the company’s bottom line.
Because of this, it is critical that the expenditures required for cloud migration, as well as the resulting operational expenses, be properly planned and sequenced over time in order to minimize their financial effect.
Engineers and data scientists are required to move to and operate in the cloud, while on-premises computing requires a far greater emphasis on business and technology management. This kind of talent is tough to attract and much more difficult to retain, particularly in light of the present high turnover rates.
Furthermore, teams operating in the cloud have a more agile culture, more flexible, and more focused on delivering results quickly. In order to support this new culture, risk departments at financial institutions will need to adapt their working model while maintaining the rigour, control, and governance that are needed for risk management operations.
What can CROs and risk managers do to assist?
Because of these difficulties, moving to the cloud is not a straightforward process. Instead, for the vast majority of risk managers, it is a multistage process that will require planning and execution within the context of the organization’s wider cloud strategy.
In addition to playing a critical role in driving adoption across the risk domain, CROs and other risk leaders can have an impact on the overall strategy and business case, and they should be involved in scoping the foundational capabilities required, particularly when it comes to security and controls. Three steps may be taken to steer the cloud adoption process in the context of risk mitigation:
Adoption require a comprehensive mindset
The capacity to manage risk should be one of the most important advantages banks may have as they compete with cloud-based fintech and other adversaries. However, the sheer amount of risk management applications that must be transferred may be overwhelming. In order to be effective, a forward-looking cloud strategy must be consistent with the goals and timelines of the company’s overall cloud transition.
This is particularly important given the intricate ways in which risk technology systems are interwoven with those of the wider business. The endpoint of which data sets make it to the cloud and how they will be utilized may act as a North Star in data visualization.
Cloud Migration Strategy [Guide]
Develop several waves of use cases in high-risk areas that are prioritized
During each stage of the migration process, risk managers must decide which models or functions should be moved to the cloud first, among other things. The process of selecting the most appropriate use cases from among an overwhelming number of available choices combines the input of risk leaders on prospective benefits with the feasibility and cost-benefit analyses provided by technology leaders. The activities that are most suited for cloud adoption, in the end, are those that demand a high level of processing, rapid response times, and significant integration of external data with third parties.
Re-engineer the operational model, skills, and organizational culture
Frontline business teams take on more responsibility for risk decisions, and more monitoring duties are automated. As a result, the activities, talent, and skill needs for risk teams are changing. For the risk function to be successful in the cloud, it will need a greater percentage of analytical and technological expertise to create, manage, test, and constantly enhance risk models and tools. Risk managers should consider how this will alter the way their organization’s risk function works.
The advantages of moving to cloud-based risk management are just too many for risk managers to ignore. Cloud computing is rapidly becoming an unavoidable need for financial institutions. Those who do not transfer their systems and skills may find themselves unable to develop fast and effectively in response to the growing number of hazards that banks are confronting and the increasing demands to compete.
Firms may get paralyzed by the sheer number of choices they must make along the way, but a focus on the most important problems and a cautious approach to implementation can help risk managers plan several moves ahead on the chessboard.