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Cloud Computing: The State of Play in the Buy-Side

Earlier this month, research and consulting firm Tabb Group released a report into the uptake of cloud computing by financial services firms. Tabb Group’s report indicates that most firms still rely on a mix of internal systems and public cloud services, and that getting this mix right is becoming an important factor in business success. Tabb Group also contends that the migration to cloud computing will proceed slowly in the financial services industry as capital market pressures force firms to weigh every investment carefully.

When it comes to the uptake of cloud computing services in the buy-side, RIMES’ view is that while some applications and data sets will remain on in-house systems for security and compliance reasons, others will move rapidly to the cloud. This is because the business case for cloud-based managed services is increasingly compelling. Deciding which workloads and applications remain in-house and which migrate to the cloud will become a key task for IT departments in buy-side firms.

RIMES believes that it is likely firms will retain in-house capabilities to store and process sensitive data, such as client data, but will use the cloud for most other requirements. This is because the cloud enables buy-side firms to mitigate the increasing cost and complexity of data management and compliance, which is being caused by a raft of new regulations.

The EU Benchmarks Regulation, for example, is increasing the regulatory burden facing benchmark administrators and will likely increase the cost of benchmarks – costs that will be passed on to buy-side consumers. Meanwhile, regulations such as MAR and MiFID II are placing new market surveillance burdens on buy-side firms; demanding they do more to monitor market and trade data for signs of market abuse.

Buy-side firms are therefore being asked to manage data at an exponentially larger scale than they’ve had to in the past, and carry out new data governance and compliance duties that require additional skills and expertise. There is no question that buy-side firms need to modernize their data management capabilities to meet these challenges, and it seems clear that cloud-based managed data services offer the best method for them to do so.

The reasons are simple. The first is time. Buy-side firms cannot afford the time it takes to carry out a large-scale IT overhaul: the EU Benchmarks Regulation and MAR are already in force, and MiFID II will come into force in 2018. If firms want to be compliant, they need their new capabilities in place today. The second is cost: large-scale in-house IT projects are expensive and are highly disruptive. Buy-side firms are looking to lower the cost impact of data management, something that in-house technology investment will render near-impossible.

Cloud-based managed services overcome both these barriers, allowing buy-side firms to get up and running with fully-compliant data management capabilities, at scale, straight away. Moreover, managed data services come with a significantly lower TCO compared to in-house data management alternatives. For these reasons, RIMES is confident that while cloud uptake might be sluggish in the financial services industry overall, managed data services will quickly become standard for several core buy-side applications; not least for benchmarks data management and compliance reporting.

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