(Bloomberg) -- The European Central Bank is keeping a close watch on lenders’ increasing adoption of cloud computing technology, according to an official at the euro area’s top banking supervisor.

“Outsourcing isn’t a bad word for us, but neither we nor banks can always easily monitor those activities,” said Francois-Louis Michaud, a deputy director general at the ECB who is reviewing banks’ use of the cloud. “They need to think about this balance between opportunities and risks as outsourcing opportunities increase.”

The Eurropean Central Bank headquarters.
The Eurropean Central Bank headquarters.

Some of Europe’s banks are choosing outside companies to host data for them as they fight to raise profitability by cutting costs and developing innovative financial services. While banks know that information is among their most valuable and sensitive assets, the ECB has made evaluating such outsourcing practices one of its priorities for banking supervision this year.

“When we visit banks for an on-site inspection, there are a range of actions the supervisors take afterwards,” he said. “We send a follow-up letter with recommendations we expect them to implement to eliminate any weaknesses we may find.”

Cost Pressures

An ECB survey found that banks spent 42 percent of their information technology budgets on outsourcing services last year, up from 36 percent in 2011, Michaud said. The cloud accounted for a “small piece,” at 1 percent of the total, he said.

Still, cost-cutting and competitive pressures are increasingly pushing banks toward the cloud, which lets users store and process information at third-party data centers.

“There isn’t all that much concentration in terms of the big cloud providers servicing the banks we oversee, although in some countries there can be more focus than others,” he said. “We don’t see any banks being really ahead of the pack, neither in their outsourcing strategies, nor regarding implementation.”

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