"Financial institutions should create a shared responsibility model with the hosting vendor. This model should clearly define expectations and outline responsibilities," Larkin states. The appropriate cyber protections and terms must be included in the contract. The vendor should emphasize their cyber controls and commitment to comply with regulations and laws within the contract. Make sure the vendor is ready to take on a fair amount of liability. They should also provide proper notification and incident management procedures if a data breach occurs. Additionally, consider the type of vendor and their risk rating. Seek service-level agreements that outline financial consequences for any unmet obligations."
Larkin recommends that financial institutions verify if a hosted-solution vendor has strong technical controls for data. This confirmation can help alleviate concerns regarding data security. This is especially true when data is not stored on-site. "Financial institutions must require data encryption, audit logging, and proper perimeter controls in their hosting environments," Larkin states.
“The biggest message is that you cannot sign a contract with a hosting provider and walk away,” she says. “Using a hosted solution does not relieve the financial institution from the responsibility of protecting data. "Ensure you maintain a strong relationship with your provider and hold them accountable. Be mindful of who has access to your data and environment."
Financial institutions that transition from on-premises technology to hosted solutions gain several advantages. They can rely on the vendor to upgrade the software regularly, often without any disruption. This ensures that all users are on the correct versions. Additionally, the vendor manages the server requirements, allowing banks to focus on their core operations. The IT team can redirect that time to other projects. They might focus on innovations that enhance customer experience, manage operational or credit risk better, or improve efficiency.
“If a financial institution adopts a hosted solution, it should utilize the appropriate resources for both implementation and ongoing monitoring. This approach can help ensure smooth operations during the transition and beyond,” says Larkin.
To benefit from the efficiencies and security of a hosted solution, financial institutions may need to shift their spending. They can move funds from on-premise infrastructure to web-based software and systems. This change may not require any additional spending. This change in spending and mindset allows the bank or credit union to concentrate on banking and its key strategic goals. These goals may include growth, improving customer experiences, or other priorities.
