Taking Swiss private banking to the cloud

Dr. Marcel Tschanz Partner Advisory, PwC Switzerland 21 Dec 2018

So far Swiss banks have been more reluctant than their international counterparts to use cloud business models. Our study argues that despite new regulation, the cloud is an increasingly attractive – and even necessary – option for the Swiss financial industry.
Swiss banks hesitant despite rich opportunities in the cloud

In a cutthroat market where agile new fintechs are increasingly vying for a slice of the pie and customers expect to have solutions as a service at their fingertips, banks are desperately looking for ways of keeping up: transforming IT departments into a business growth engine, revamping operations to achieve scale and enhance speed and collaboration, and creating innovative products and services to generate new sources of revenue.

Cloud-based solutions can create remarkable opportunities, as they present strategic ways of striking a balance between enabling business growth and innovation and lowering costs while still continuing to provide operating efficiencies.

Gartner predicts that the global public cloud market will grow to over USD 470 billion by 2021, with a rapidly growing share of infrastructure, middleware, application and business process services shifting to the cloud.

So why are Swiss banks so reluctant to make the move? A new study by PwC, Taking Swiss Private Banking to the Cloud, examines the reasons and argues that in many cases their resistance is unjustified.

Besides political stability and military neutrality, one of the key factors in the success of Swiss private banking has been its commitment to protecting their clients’ assets. Despite cracks in the wall of privacy due to a combination of new regulations designed to increase tax transparency and security breaches perpetrated by individuals, customer identification and the storage of related client identifying data is a key element of the current business model that will be hard to change.

New rules on data protection (for example the EU’s GDPR and the corresponding Swiss legislation) and outsourcing (including circulars and guidelines issued by the Swiss regulator FINMA and its European counterparts) are often perceived as making outsourcing to the cloud even trickier. The fact is, however, that changes in the requirements are allowing banks and insurance companies to think about new opportunities in the area of outsourcing, including cloud services.

How to avoid the pitfalls...

Nevertheless, the industry in Switzerland is starting to change. Banks are gaining initial experience in using cloud providers, starting with non-critical environments, and increasingly also moving critical processes to the cloud. PwC has found that despite the perceived pitfalls created by new regulation, there are no insurmountable legal or regulatory obstacles that would prevent banks from using cloud business models – provided they understand the requirements and adapt their cloud strategy in line with specific risk considerations and contractual agreements.

PwC has identified a number of key areas that banks should think about when implementing cloud services, especially with regard to client identifying data. 

  • They should understand the level of data protection provided by countries where data are to be processed, accessed or stored, and adopt additional data protection measures as necessary. 
  • They should make sure that transfers or breaches of banking secrecy have the necessary consent of clients. 
  • They should get assurances from potential cloud providers regarding data security, and think about whether additional measures such as anonymisation, pseudonymisation and encryption are required. 
  • They should consider the regulatory requirement to ensure access to data from Switzerland at all times, even if the bank is restructured or wound up. 
  • They should make sure contracts and terms of business reflect the decisions taken on encryption and anonymisation and the information given to clients on outsourcing arrangements and data locations.
  • And they should make sure everything – risks, measures, evaluations and decisions – in the process of defining the cloud strategy is documented to demonstrate legal and regulatory compliance.
...and seize opportunities that could be key to your survival

But before banks get bogged down in the legal and regulatory details, they need to form a vision of how they intend to do business in the cloud and understand the challenges this will entail. They have to realise that operating in a cloud environment will change their operating model, as it requires deeper integration with the vendor and better management of the vendor relationship.

Making the vendor relationship work means carefully considering vendor reputation, entering into ironclad service level agreements once you’ve selected a provider, making the appropriate arrangements to manage business continuity, considering your exit path, and understanding your vendor’s pricing model. Others have already learned the hard way: you can draw on the experience of seasoned advisors to avoid making the same mistakes.

By addressing the risks, you can create a firm platform for seizing the rich opportunities offered by the cloud. Whether you opt for a public, private, community or hybrid solution, reaching for the cloud will help you accelerate time to market, innovate with the business, respond rapidly to changes in demand, and optimise the cost and usage of assets.

All this could make the difference between success and failure, survival and disintegration. We at PwC see a clear tendency for banks and insurance companies to use (international) providers to reap the benefits of various cloud business models. With so much at stake, can Swiss private banking afford to stay on the ground?

Ready for the cloud?

If you're aware of what you're doing, there are more reasons to use the cloud than avoid it:

  • Remember that the risks can be managed, and are outweighed by the opportunities
  • Understand the requirements that apply to you, especially with regard to client identifying data
  • Pay special attention to managing the relationship with your vendor
  • And get yourself a good guide.
How can PwC help?

PwC has significant experience when it comes to helping companies set up and integrate cloud environments with all the major providers. Our experience, plus a wealth of thought leadership on cloud computing, has gained us recognition as a leader in worldwide cloud professional services. So if you’re looking for a trusted guide on your journey into the cloud, look no further. We’ll be glad to talk.

 

Contact us

Dr. Marcel Tschanz

Partner Advisory, PwC Switzerland

Tel: +41 58 792 20 87

Jens Probst

Partner Risk Assurance FS, PwC Switzerland

Tel: +41 79 372 57 88

Chris Fraune

Director

Tel: +41 58 792 1995