Bank of England eyes power of Amazon, Microsoft and Google in finance

·Senior City Correspondent, Yahoo Finance UK
·3-min read
--FILE--People visit the stand of Amazon during an expo in Shanghai, China, 18 September 2018. Amazon's cloud service platform, Amazon Web Services, announced China Express Airlines, China's first privately owned airline specializing in regional air passenger and cargo transportation, has selected AWS China (Ningxia) Region, operated by Ningxia Western Cloud Data Technology Co Ltd, to provide its cloud infrastructure. (Photo by dycj - Imaginechina/Sipa USA)
The Bank of England said new rules were needed to govern the use of cloud computing services such as Amazon Web Services (AWS). Photo: Dycj - Imaginechina/Sipa USA/PA

The Bank of England is worried about the growing power of cloud computing in finance, calling for new regulations to govern the use of services like Amazon (AMZN) Web Services and Microsoft (MSFT) Azure in fields like banking and insurance.

The central bank flagged the growth of cloud computing as a key area of concern in its bi-annual Financial Stability Report, which looks at risks to the UK's financial stability and how prepared firms. Members of the Financial Policy Committee said: "Additional policy measures to mitigate financial stability risks in this area are needed."

"Cloud service providers are an increasingly integral part of the infrastructure of the financial system," Bank of England governor Andrew Bailey told journalists. "There's many good reasons for that — it is a model that works. But as they become more integral, obviously the risks to the system increase, the systemic risks increase, and it becomes much more an area of focus."

Read more: Bank of England: UK banks in good shape despite increase in risk taking

Bailey said the Bank of England was concerned about the security of new cloud systems, many of which are guarded by secrecy.

"The model has been developed in quite an opaque and closed fashion," he said. "I understand part of the reason for that — obviously, we don't want people publishing how this thing works in great detail so hackers get the guidebook as it were. But as regulators, as people interested in financial stability, we have to get more assurance that they are meeting the levels of resilience that we need."

Bank of England Governor Andrew Bailey. Photo: Stefan Rousseau/AFP via Getty Images
Bank of England Governor Andrew Bailey. Photo: Stefan Rousseau/AFP via Getty Images

Policymakers also have concerns about the relative lack of competition in the market. 

"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," Bailey said. "That is where we do have a concern and do have to look carefully because that concentrated power on terms can manifest itself in the form of secrecy, opacity, not providing customers with the information they need to be able to monitor the risk in the service. We have seen some of that going on. Frankly we'll have to roll some of that back."

Bailey and his colleagues did not call out any companies by name but concerns are likely to focus around Amazon, Microsoft, and Google (GOOGL). The three companies' cloud services — AWS, Azure, and Google Cloud — control almost 60% of the global cloud computing market, according to recent estimates.

Read more: Bank shares rally as Bank of England abandons payout controls

The Bank of England declined to give specific figures on usage of cloud computing in the UK financial sector but Sam Woods, deputy governor and head of the Prudential Regulation Authority, said important systems were increasingly being put on the cloud.

"This is no longer, as it was a few years ago, something happening around the periphery of banks' systems — a less important HR system versus a core ledger," he said. "What we now have moving are things that are much more integral.

"It is not our view that this is a bad thing — it may indeed be a good thing. But we just need to make sure as it's done that our statutory duties are being reflected. While we've got some tools, we've got to the point of thinking we may need some more."

Watch: What are negative interest rates?

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting