SBP Allows Use of Limited Outsourcing of Cloud Services To Financial Institutions

State Bank of Pakistan (SBP) has allowed the use of limited outsourcing of cloud computing services to banks and financial institutions (FIs) mainly for the non-core operations and business support processes.

According to the banking regulator, financial institutions’ can avail all types of cloud service models including Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS), etc. from domestic and off-shore Cloud Service Providers (CSPs).

FI(s) can use cloud services for non-core operations and business support processes such as

  1. HR Modules,
  2. Procurement Functions,
  3. Non-Production Environment,
  4. Sandboxing, Inventory Management,
  5. Supply Chain Management,
  6. Office Productivity,
  7. Customer Relationship Management Tools (WhatsApp, Facebook etc.),
  8. Communication Tools,
  9. Security Tools,
  10. Computation and Processing Services,
  11. Data Analytics and Risk Modeling,
  12. Middleware and Payments Processing Services/ Platforms etc.;

Financial institutions are not allowed to share customers’ details

All other banking applications and allied infrastructure, which are used to store and process customers’ information relating to deposits, loans and credits and details of balances and transactions in ledger accounts of customers or borrowers, shall not be placed under cloud-based outsourcing arrangements.

FI(s) shall ensure that their internal/ external auditors and SBP have the right to conduct an audit and on-site inspection of the CSP or its subcontractor. Further, there should be no restriction or prohibition on visits by audit or SBP staff or such visits are otherwise not impractical.

In case, where audit cannot be conducted for a valid reason(s), FI(s) may rely on internationally recognized third party certifications and reports made available by CSP.  However, reliance on these third-party certifications and reports shall be supported by adequate understanding and review of the scope, the methodology applied therein, and the ability of third parties and CSP to clarify matters relating to the audit. These reports shall be shared with SBP as and when required.

Internal Controls in Cloud Outsourcing Arrangements

SBP instructed banks and financial institutions to ensure certain aspects while entering into an outsourcing arrangement with CSPs.

  1. All cloud-based outsourcing arrangements are undertaken through legally binding Service Level Agreements (SLAs);
  2. FI(s)’ data is encrypted at the database level, storage level and during network transmission and shall be logically segregated from other data held by the CSPs;
  • The arrangement does not contain a lock-in clause. In case of exit from cloud services, FI(s) shall have contractual rights to continue with the arrangement until such time, an FI is able to switch to a substitute arrangement;
  1. Data transferability and portability from one CSP to another and its purging/ deletion in case of exit;
  2. CSP complies with SBP’s requirement for the provision of data/ information relating to FI(s)’ operations;
  3. Disclosure of FI(s)’ data to any third-party by CSP is prohibited without approval of FI(s).

Notwithstanding the instruction contained in section IX (h) of ‘Framework for Risk Management in Outsourcing Arrangements by Financial Institutions’, subcontracting is allowed in outsourcing arrangements with CSPs provided they shall comply with all relevant laws and SBP’s regulations.

All outsourcing arrangements to cloud service providers by FIs shall be governed under ‘Enterprise Technology Governance and Risk Management Framework for Financial Institutions (FIs)’, SBP circular said.