Originally published in BNA’s Banking Report on January 8, 2013.

The rapid growth in the availability and sophistication of cloud computing services — on-demand, scalable information technology services provided over the internet — presents significant opportunities for cloud computing hosts and users alike. For potential users, cloud computing can offer a number of important benefits, including very significant cost savings and operational efficiencies, flexibility in deployment, ready access to systems, applications and data, better backup services, and faster and more responsive upgrade functionalities. Potential hosts such as major IT service providers correctly see significant business opportunities in cloud computing, whereas potential users of cloud services recognize the cost efficiencies and technological and business flexibility offered by potential cloud solutions. As a result, the interest in, and demand for, cloud computing services has increased dramatically over the past several years. IT industry surveys point to the likelihood of a continuing significant migration away from ‘‘hard’’ IT platforms towards internet based services as a solution for hardware, infrastructure and software needs alike.

Financial services firms (e.g., banks, securities firms, asset managers and insurance companies) are among the business organizations that see significant potential benefits in cloud-based systems. Many banking and other financial services firms are closely examining cloud-based IT solutions, and several major technology services providers (TSPs) are creating cloud computing systems that are aimed at financial services firms. For regulated firms such as banks, investment banks and money managers who may be tempted to move all or part of their IT infrastructure into the cloud, however, there are significant legal and regulatory challenges that they must consider and resolve before they do so. In turn, the issue that financial firms face today is whether the state of cloud computing has developed to a point where these challenges can be cost-efficiently and successfully addressed.