Despite the many different forces pushing and pulling the financial services industries in various directions, a single quality can help firms effectively adapt to each of those forces - flexibility. Between tightening regulation, market dynamics, a hypercompetitive marketplace, and continuously evolving technologies, firms must be flexible and agile in every facet of operations to keep pace with investor expectations and a fluid landscape.
Just as flexibility can continually allow financial services firms to mold themselves to that constantly shifting environment, cloud technologies are proving to be the technological backbone to that agility. In fact, the industry has only recently come to terms with its old-fashioned, outdated ways that might have satisfactorily served it in decades past but now threaten it with mass extinction.
In that sense, cloud technologies represent a type of industrial Darwinism that is only now taking root throughout financial services firms. Companies that are open to the benefits it provides operations, and implement cloud-based solutions in intelligent, appropriate ways will reap the rewards and evolve along with the marketplace. The recent deal between BNY Mellon's Eagle Investment Systems and Microsoft embodies this evolution, with BNY understanding the need for flexible, scalable cloud solutions to meet growing regulatory demands while increasing cost efficiency.
Xinn, of course, applauds those firms that understand the necessity for cloud-based solutions in a rapidly changing marketplace and take proper and appropriate action to ensure their future viability. As investment management finally moves to the cloud, we thought it only fitting to discuss some specific benefits, best practices, and overall thoughts to help firms in their technological evolution.
It's Been a Long Haul
While cloud-based solutions indeed aren't anything new to industry, they are just now being openly embraced by the financial services sector which, of course, begs the question - why has it taken financial services so long to adopt technology that is clearly transformative and pervasive across all forms of business and commerce?
As is usually the case, the answer to such a question is complicated and stretches back decades to the days when being firmly stuck in traditional, outdated practices was almost seen as a badge of honor in financial services. Likewise, the nature of the various systems used throughout the industry, often a hodgepodge of different vendors and platforms forced under a teetering infrastructure, simply made it easier to retain the status quo rather than invest significant time and resources into more uniform, synced solutions.
Although it's tempting to attach an "if it ain't broke, don't fix it" adage to those traditional attitudes, many of those systems were in fact quite broke and made the entire industry susceptible to security risk, ongoing inefficiencies, and a dissatisfied investor base. Older legacy systems, along with existing internal controls, and perceived threats to massive positions that were incorrectly thought to be more vulnerable through cloud-based platforms, collectively made firms hesitant, sometimes even unwilling, to adapt to technological change.
However, the last 15 years have placed a bright, sometimes burning spotlight on those antiquated practices, with the financial crisis of 2008, regulatory acts like Sarbanes-Oxley, Dodd-Frank, MiFID II, and GDPR, as well as changing investor demands, placing a premium on transparency, security, and - once again - flexibility. Like it or not, the industry has essentially been dragged into innovation and will ultimately be much better off because of it.
Sink or Swim
Given the highly diversified, expansive nature of the financial services industry, it only makes sense to adopt cloud-based technologies wherever and whenever appropriate. Books of business are no longer just spread across cities, regions, or states but now span continents, making the industry distinctly international.
Likewise, as interconnected systems that rely on modern software have been implemented to optimize communication between global offices in a highly globalized economy, local servers cannot meet the demand for flexibility, scalability, and convenience demanded by an incredibly dynamic industry.
In essence, continuing to rely on local servers is akin to running the most advanced apps on the latest smartphone through a 3G network. Local servers inherently inhibit the benefits derived from even the most advanced of platforms by forcing them to rely on outdated storage systems and communication.
The Benefits to Cloud Far Outweigh Concerns
Harkening back to our original example, BNY's Eagle Investment Services partnered with Microsoft to enjoy the specific benefits offered by their Azure cloud platform. While Microsoft's cloud services are one of many for firms to choose from, it provides distinct advantages to financial services firms that separate it from the competition.
First and foremost, Azure affords firms unparalleled speed and flexibility throughout most facets of operations. It maximizes agility and scalability, giving companies the ability to rapidly scale up or down as needed, across the entire globe. Perhaps even more importantly, Azure provides reliable end-to-end integration that offers firms solutions that can hit the proverbial ground running without costly delays in testing and development.
Also, the specific needs of growing regulation were taken into account throughout Azure's development, giving firms ready-made, effective compliance solutions that are highly secure and adaptable to the ever-changing compliance landscape. At risk of sounding like a broken record, the flexibility provided by Azure means financial services firms can feel confident that solutions applied to today's compliance needs are also adaptable for tomorrow's regulations.
From Xinn's perspective, embracing cloud technology has been a long time coming in the financial services industry. Whether or not this embrace is due to organic market dynamics or forced upon the industry by regulation is secondary to the implementation itself. As the financial services sector continues to integrate cloud-based solutions, Xinn is confident that this wave of technological change will provide lasting benefit to an industry that has traditionally viewed innovation from an unnecessarily narrow view.