BoE warning over tech giants’ dominance as cloud providers
BoE warns overreliance on tech giants providing cloud services may pose a financial risk
The Bank of England (BoE) has issued a warning over the financial sectors reliance on cloud data providers, such as Amazon, Microsoft and Google.
In the central bank’s latest survey of the financial system, it warned that UK banks are transitioning more and more of their administration and accounts online into the cloud. The bank believes this move “could pose risks to financial stability”.
Prior to this warning, the BoE has already cautioned that Google, Amazon and Microsoft dominate the area, and the cloud online servers are highly concentrated.
Institutions have ‘accelerated’ their reliance on cloud services
The BoE’s Financial Stability Report outlined that since the start of 2020, financial institutions have “accelerated” their plans to increase reliance on cloud service providers (CSP).
The report added that this over reliance could “increase financial stability risks” and greater regulatory oversight is needed.
Sam Woods, the bank’s deputy governor, responsible for prudential regulation, said: “This is no longer something happening around the periphery of banks‘ systems – for instance with HR systems.
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“What we now have moving into the cloud are things that are much more integral to the running of banks, which could go to safety and soundness.”
Microsoft and Amazon stocks drop
Microsoft stocks were down today by 0.22% and Amazon by 0.021%. Microsoft’s Azure and Amazon’s AWS were not called out directly by the bank, but they are the concerned companies involved.
Along with Google Cloud, another firm that is a big provider of cloud services, the three companies together control almost 60% of the global cloud computing market. Still, Google stocks were up today by 1.16%.
BoE governor weighs in
Andrew Bailey, governor of the BoE, explained in an online press conference for journalists that CSP are ”increasingly an integral” part of the financial services because “it is a model that works”. Nonetheless, as they are becoming more integral, the risks to the system increase and “it becomes more of a matter of focus”.
Bailey added: “As the market becomes more concentrated on a small number of suppliers, those suppliers can exercise market power, not only in price but also of the terms. That is where we do have a concern and do have to look carefully.”