FRANKFURT, GERMANY – The European Central Bank (ECB) is seeking industry input on its new guide for banks using third-party cloud computing services. This guide aims to standardize supervisory practices and clarify ECB expectations, ensuring a level playing field for all institutions.
The guide highlights best practices observed during inspections by its Joint Supervisory Teams and emphasizes the need for robust risk management frameworks.
Benefits and risks of banks outsourcing cloud services
Many banks are increasingly embracing cloud services for their potential benefits, including cost-efficiency, scalability, and enhanced security. However, the ECB emphasizes the importance of managing risks associated with outsourcing, such as IT security and potential business disruptions. The ECB cites the following concerns as examples:
- Difficulties finding alternative providers: In the event of an outage with a cloud service provider, there’s a risk of a bank’s core functions being interrupted if a suitable substitute cannot be readily found.
- Concentration of cloud service providers: There is a limited number of cloud service providers, many of whom are located outside of Europe. This concentration can increase banks’ exposure to potential disruptions or legal issues arising from data residency regulations.
This focus on cloud outsourcing follows vulnerabilities identified by the ECB during their 2023 Supervisory Review and Evaluation Process (SREP). Third-party risk management, including cloud outsourcing, remains a top supervisory priority for the ECB, aligning with the EU’s Digital Operational Resilience Act (DORA) and the Capital Requirements Directive, which promotes proactive risk mitigation and cyber resilience.
The public consultation on the cloud outsourcing guide is open until July 15, 2024. The ECB will consider public feedback before finalizing the guide.
