Cloud Adoption and Risk Report 2019

1. Cloud adoption Special report 2019 Risk.net Sponsored by

2. Sponsored feature Successfully moving risk software to the cloud Cloud technologies offer numerous benefits over traditional on-premise deployments. While the rate of adoption in the financial services industry was initially slow, banks and asset managers are now embracing these technologies and moving their enterprise applications to the cloud. CompatibL Technologies describes its experience of leveraging the latest serverless technologies for its enterprise risk application 1 Cloud adoption Special report 2019

3. Sponsored feature Building new architecture versus moving existing on-premise architecture to the cloud Migrating a mature enterprise software package to the cloud is a formidable challenge. A complex project with tough deadlines and budget limitations often causes a project’s leadership to take the path of least resistance and simply transplant existing software architecture to the cloud by relying on the Infrastructure-as-a-Service (IaaS) offering of their cloud provider. This option results in migrating the application by merely creating its mirror image in the cloud, with each on-premise server migrated to its virtualised cloud counterpart. This approach requires few changes in the software itself for the migration. In the long run, this deprives organisations of the tremendous value and potential of true cloud technologies such as Docker, Kubernetes, Amazon Web Services (AWS), and Lambda, Fargate, Step and Azure functions. The advantages of true cloud technologies include lower development and operating costs – due to the use-based billing model of the serverless cloud – and superior scalability and flexibility. By implementing serverless cloud technologies, CompatibL was able to reduce the infrastructure cost of CompatibL Risk Cloud deployment in the AWS cloud by an average of 62%, and in the Azure cloud by an average of 72% compared with deploying the same application in an on-premise data centre. This cost advantage was made possible by leveraging true serverless cloud technologies rather than running the existing application on virtualised servers. progress and share their settings and results easily. An effective and easy-to-use multi-user mode helps reduce the cost of running enterprise risk in the cloud through more effective collaboration and data sharing. calculation is limited in the time it takes to run and the number of vCPUs it can use. User collaboration in the cloud With typical cloud applications, there is no need to share query or calculation results between users – the application performs each query or calculation anew because the overhead costs of storing the results exceed that of repeating the call to the function that produces them. In enterprise risk, using the application is a collaborative process, and multiple users can work together to produce or analyse the same complex, CPU-intensive reports. In a well-designed enterprise risk cloud application, users can view each other’s Summary Migrating to the cloud entails much more than moving existing on-premise applications to virtualised servers hosted by cloud IaaS providers. Only by embracing true serverless cloud technologies can firms leverage the full benefits of the cloud in reducing the development and operational costs of enterprise risk. ■ AWS and Azure Adapting to the central processing unit (CPU)- heavy requirements of enterprise risk Most cloud architecture solutions are designed for a set of standard performance requirements that are very different from the unique performance requirements of enterprise risk management. A typical cloud application has moderate CPU or random access memory (RAM) requirements and can run with each virtual CPU (vCPU) supporting a large number of concurrent users without running into performance limitations. In enterprise risk management, most calculations are CPU- and RAM- intensive. The cloud architect must consider the limitations to popular cloud technologies that may be triggered by running such loads. For example, each AWS Lambda calculation is limited to15 minutes – there are limits to how many vCPUs an AWS Fargate run can use, and the list of limitations unfamiliar to software engineers with on-premises-only experience goes on and on. These limitations must be addressed when moving from an on-premise enterprise risk application that performs a single, long calculation on a manycore server to a cloud architecture where each element of the In CompatibL Risk multi-user mode, users can view current progress and other users’ real-time changes risk.net 2

4. Sponsored Q&A Seamless integration Drivers of and barriers to cloud adoption Siarhei Niaborski, executive vice-president of risk at CompatibL, discusses the rate of cloud adoption in the capital markets industry and its possible drivers and barriers, how firms can derive maximum value from cloud usage and the criteria on which firms should determine their choice of cloud model 3 Cloud adoption Special report 2019

5. Sponsored Q&A To what extent are capital markets firms embracing cloud? Siarhei Niaborski: In the past, the capital markets industry lagged behind others when it came to cloud adoption. While the initially slow adoption rate of cloud technologies in capital markets was often attributed to the need to comply with regulations, other heavily regulated industries such as retail banking and insurance have historically had a greater cloud adoption rate than capital markets. This trend is beginning to change, and capital markets firms are rapidly moving towards cloud adoption. They now see technology transformation as part of their strategic, long-term objectives. As a software and services vendor, CompatibL is ready to collaborate with its clients in their cloud transitions. CompatibL has developed multiple cloud deployment options for its software – CompatibL Platform and CompatibL Risk – including on-premise, hybrid cloud and public cloud. CompatibL has also invested in making its software work with most mainstream cloud providers. Siarhei Niaborski Executive Vice-President, Risk www.compatibl.com CompatibL choses to invest not only in the latest cloud technologies but also in training its integration and IT specialists to support clients’ transitions from on-premises to the cloud. What is driving cloud use? Siarhei Niaborski: The primary driver of cloud adoption in the capital markets industry is the increased demand for low-cost computational and storage resources that can be scaled up and down on demand according to the needs of the enterprise. The ability to rapidly provision new infrastructure drives firms’ ability to quickly respond to changes in the market, deploy new technologies and incorporate big data and new analytics into their business processes. By cutting the time it takes to deploy and scale their IT infrastructure – and avoiding the need to pay for excess capacity – cloud adoption helps firms better meet their business needs and gain a competitive edge in today’s challenging market environment. What criteria should determine firms’ choice of cloud model? Siarhei Niaborski: The National Institute of Standards and Technology, a standards-setting body, defines three cloud service models (infrastructure, platform and software) and four deployment models (private, hybrid, public and community). The infrastructure service mode – or Software-as-a-Service (SaaS) – is suitable for firms looking to move their on-premises data centre to the cloud without re-engineering their software around cloud services. While this service model brings some limited benefits, only organisations that take the next step of using the cloud via the platform service model – or Platform- as-a-Service (PaaS) – maximise the value of cloud migration. For vendor software, both PaaS and SaaS models offer full access to the latest cloud technologies, and the choice between them depends on a firm’s preferences as to who will maintain primary control over the cloud resources used to host the firm’s data and run its processes – the firm itself for PaaS, or the vendor for SaaS. Of the four cloud deployment models, private, hybrid and public are widely used in capital markets, while the fourth – a community deployment model where a consortium of firms runs a shared cloud infrastructure – is relatively rare. The public cloud – namely, using the infrastructure of an established cloud provider such as Amazon Web Services or Azure – is usually a more cost-effective and flexible choice than the private or hybrid cloud. In addition, the public cloud is frequently the best choice for early access to new cloud technologies. Software vendors should be able to implement the firm’s choice of cloud deployment model without restriction. How can firms maximise the benefits cloud offers? Siarhei Niaborski: Firms may derive limited benefits from moving their existing in-house or vendor applications that were initially designed for the data centre to virtual servers hosted in the cloud without software re-engineering and without utilising true serverless cloud technologies. In this Infrastructure-as-a- Service cloud deployment model, the firm retains full control over the servers and makes either limited or no changes to their software. However, this approach does not deliver the full power of the cloud. To unlock the full potential of the cloud, the software itself must be re-engineered around such cloud technologies as serverless computing, non-structured query language (NoSQL) databases and cloud storage. Cloud benefits can only be maximised by fully embracing the cloud, incorporating true serverless cloud technology and tools into a firm’s application architecture, and demanding the same of the firm’s vendors. What are the barriers to wider cloud adoption? Siarhei Niaborski: In the past, the main barrier to cloud adoption was the lack of certainty and industry experience in complying with data protection regulations and internal policies when firms’ data – and, more importantly, their clients’ data – is not located in their own data centre. Following advances in cloud security and the steps taken by regulators to clarify how capital markets firms can implement regulatory data protection requirements in the cloud, privacy and security are no longer the main obstacles to cloud adoption. The remaining challenge is the complexity of data and processes in large capital markets enterprises. Unlike a typical cloud-based retail application, the enterprise capital markets function relies on a complex network of data providers, trading and risk systems, reporting solutions, and other existing technology that must be migrated to the cloud. Where is the greatest potential for cloud computing in the future? Siarhei Niaborski: The greatest potential for cloud computing for capital markets is in enabling seamless integration of new technologies (such as serverless computing and NoSQL) and paradigms (such as big data and machine learning) into front-office and risk management applications. The infrastructure and computing demands of these new, game-changing technological advances are increasingly difficult to meet within the confines of a traditional data centre. Organisations that move their business processes to the cloud will gain a decisive competitive advantage by being able to deploy the new technologies and analytics faster and at lower cost than competitors that continue to use on-premises data centres. n risk.net 4