"As a result of cloud computing's unique blend of scalability, flexibility, cost efficiency and massive processing power, the technology is gaining application in capital markets," said the report.
Cloud computing -- essentially the concept of storing and processing data on remote computer servers on the internet rather than physical servers held locally by the given company -- has a number of advantages.
Outsourcing IT infrastructure via the cloud to third party providers such as Amazon Web Services, Microsoft, or Google enables a company to reduce its focus on maintenance of commodity technology.
This enables more resources to be devoted to creating differentiated offerings for each client segment, and improves the use of data to better target those segments.
The customer experience is improved when information can be processed more quickly and seamlessly across applications all integrated on a single cloud server.
"The benefits of modern digital experiences, well-thought out customer journeys and straight through, real-time processing are inherent in modern cloud-based banking and financial market systems," says Wilshire.
On the cost side, there are further efficiencies that come from centralisation of IT capacity through major cloud computing providers. This enables companies to benefit from economies of scale in IT infrastructure. It provides an added ability to smoothly scale computing capacity as the company grows.
Adoption has been slow due to prior investment in legacy IT systems and concerns about transition to the cloud, regulatory factors, and a segregated departmental approach to infrastructure among capital markets firms in the past.
New Zealand firms, in particular, have faced the challenge of a lack of domestic providers, with most cloud computing infrastructure existing offshore. This results in the need to manage the risks inherent with offshoring data if the choice is made to adopt cloud solutions. "The limited investment in large-scale public cloud infrastructure in New Zealand creates additional complexity around data, network performance and outsourcing, and off-shoring regulations," explains Wilshire. "The closest existing and planned nodes for the cloud giants are on the eastern seaboard of Australia."
This, in turn, creates a barrier for large banks due to the Reserve Bank's existing outsourcing policy, which requires they have the legal and practical ability to control and execute core outsourced functions.
Adherence to this reduces the commercial advantages of adoption cloud computing in the first instance.
Well-thought out customer journeys and straight through, real-time processing are inherent in modern cloud-based banking.
However the policy, developed in 2006 before cloud services were developed and ubiquitous, is currently under review by the Reserve Bank. Industry players hope the regulations will become more accommodating of cloud technologies.
With high-profile cyber attacks occurring with increasing regularity, storing data with offshore cloud services will carry some risk. But cloud providers can often provide greater assurances of limiting that risk than a single company can by using its own servers.
"Many businesses now rely on outsourcing vendors to provide services, such as third-party data warehouses, or data custodians/caretakers, who often provide a higher level of infrastructural and data security than can be provided in-house by banks," the Asia Cloud Computing Association submitted during the Reserve Bank's policy consultation process.
"In such a case, we recommend that the focus of the amendments be whether the bank has the appropriate contractual assurance on both concepts of ownership and control."
Peter Bailey, General Manager at Aura Information Security, says "as the technology grows and more people use it, I think there's bound to be some more regulation.
"But I think it needs to remain flexible enough to give people the opportunity to use the systems in the way they need to."
Much of the responsibility for managing cyber security risk will fall on individual companies doing their due diligence during the selection and implementation phase. Bailey says companies must guard against complacency. "There's a tendency to think 'if I'm going with a cloud supplier I'm passing my risk over to someone else'.
"Organisations can use cloud to reduce risk so long as they implement it well. But they need to do their homework up front," he says.
This homework includes understanding the supplier, matching their needs with the capability of the supplier, and ensuring contracts are clear on what services are in fact being provided.
Looking forward, cloud computing may impact the capital markets in ways even more visible to consumers, depending on the regulatory environment.
"Changes to the Financial Advisers Act and the Financial Service Providers Act to enable robo-advice, which allows codified advice to be provided by digital means to retail investors, has the potential to dramatically improve the digital offerings of fund managers," predicts Wilshire.
"These changes have a great upside for the New Zealand public to take better control of their KiwiSaver portfolios. Expect to see new offerings in the next 6-12 months focused on this space," he says.
