All companies are under increasing pressure to find ways to cut costs while providing innovative services and products. Not surprisingly, many financial institutions, pharmaceutical companies and other highly regulated companies are considering cloud computing (using hardware or software hosted by a third-party vendor remotely over a computer network) because of the number of advantages that it provides. For instance, a cloud computing model can provide substantial cost savings, offer flexibility, increase efficiency and allow more internal resources to concentrate on revenue generation. However, companies must consider the additional regulatory risks associated with cloud computing and analyze and assess these risks before deciding to place any data in the cloud.
The decision to enter the cloud is a risk-based decision. Cloud computing is considered “another form of outsourcing with the same basic risk characteristics and risk management requirements as traditional forms of outsourcing,” as the Federal Financial Institutions Examination Council said in a statement. Before deciding to enter into the cloud, companies must do their due diligence to determine what functions they are willing to outsource to the cloud, find a vendor who is capable of helping with those needs, and negotiate a contract that, among other things, provides comfort that their data will be safe, available when needed, and in compliance with all regulatory requirements. The importance of having specific provisions in the contract with a cloud-computing provider that address regulatory risks cannot be overstated—the language of the contract may determine if a company meets its regulatory obligations because the contract is how an entity requires the vendor to comply with such obligations.
Regulatory Risks in the Cloud
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