Why financial market infrastructures are moving to the cloud–and what’s holding them back

The state of cloud adoption

More than a third of existing applications are now migrated to the cloud.

According to Coalition Greenwich’s recent survey, in collaboration with Red Hat, of 20 senior technology, operations, compliance and risk experts across the world's largest financial market infrastructures and the systemically critical investment banks that utilize them. Notably, these organizations providing critical services that enable financial markets to operate smoothly are moving more essential services to the cloud. This illustrates a comfort level by both regulators and the market participants who rely on these services. 

Some survey respondents had a clear strategy to fully exit their existing datacenters, while others planned to keep some of their existing datacenter capacity. The broad range of answers shows that while cloud computing might be a common long-term aspiration, there isn’t a universal approach to adoption. The size and complexity of the application landscape will vary for every organization. However, the overall consensus from the executives interviewed in the survey is that migrating to the cloud is necessary for new or modernized applications. 

A renewed emphasis on time to market

Coalition Greenwich’s survey results shows that it isn’t so much about if financial market infrastructures are moving to the cloud, but how the value drivers are shifting. We know that, historically, operating cost is a motivator. However, the technology landscape is rapidly evolving with the accelerated change from using AI, illustrating just how quickly things are shifting. The survey reflected this as well. Although cost reduction is an important value driver, so are time to market and flexibility.

The top 3 value drivers based on survey respondents are:

• Flexibility: 80%
• Cost reduction: 75%
• Time to market: 75%

These findings show that as organizations mature in cloud adoption, they also adjust what they prioritize as their key value drivers from their strategy. This demonstrates that tools that sit on top of the cloud infrastructure and reduce time to market are equally as important as more cost-effective datacenters.

Overcoming operational risks

So, what are the key reasons why an application or service has not migrated to the cloud yet?  Obviously, the cost and complexity of migration is one factor. However, Coalition Greenwich’s report has some useful insights when it comes to risk. 57% of those who were interviewed said that operating risks were a key reason an application was prevented from being migrated. There are unique challenges in cloud operations that organizations need to overcome and confidence that operational risk requirements can be met for certain applications. 

While this has slowed down migration of some services, it isn’t due to a lack of trust. In fact, organizations feel confident that third-party service level agreements (SLAs) can be met. A number of executives likened the cloud to a toolbox and noted that when it came to protecting data it was their responsibility and not the responsibility of service providers. Coalition Greenwich expects to see this number decrease as new operational tools come to market that reduce operating risk and make it easier to operate across multiple cloud environments.

Opportunities for cloud operations

Coalition Greenwich estimates that US$1.2 billion is spent on cloud compliance per year across financial market infrastructures across the globe. These costs are for existing applications or services that have been migrated to the cloud. This number will likely grow as more of the application portfolio is migrated over. The increasing cost can be a motivator to simplify and standardize cloud operations across the organization. This is especially true as many investment banks and financial market infrastructures have operations that span across multiple types of data centers and infrastructure providers. 

The report noted that these organizations that were interviewed see the benefits of using multiple clouds for business continuity purposes. Red Hat has a long history of reducing the cost and complexity of cloud operations. For example, Forrester recently recognized us as a leader in multicloud development and operations. These capabilities become increasingly important as organizations look for economies of scale across cloud environments and to reduce operating risk. 

AI as a modernization accelerant

For many organizations, the easy to modernize applications have already been migrated to the cloud. The ones left behind are often more complicated and/or the cost to migrate outweighed the business benefits. Executives described the process “bumpy” and cited the age of some of the applications and services as problematic. Coalition Greenwich notes that the growing sophistication of machine learning models (such as Granite Code) that can explain, translate, and fix code can accelerate modernization.  Using artificial intelligence (AI) this way not only reduces the time and effort to migrate, but also opens up new opportunities to streamline cloud compliance efforts. 

Learn more 

I hope you find these insights from the report useful as you evolve your cloud strategy. The cloud adoption by financial market infrastructures report has additional findings and analysis from Coalition Greenwich for business and technology executives within financial markets.