Financial Firms Ask: Who Has Jurisdiction Over the Cloud?

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May 14, 2012 - Financial firms can ‘outsource’ almost any operation, from reporting to trade processing to customer support, to the computing cloud, anywhere in the world.

So what country’s rules and laws apply, say, to storage of customer data?

After all, asJeff Brody, vice president and director of infrastructure services at Eaton Vance pointed out at ICI GMM 2012, some cloud providers reserve the right to move its processing of tasks or storage of data, from country to country.

So a fund firm needs to understand where it’s data is being put, to help determine whether it may or may not face legal restrictions on how that data is used.

This “speaks to how we need to get more pointed in our (requests for proposals)’’ from cloud services firms, Brody said.

The proposal may need, for instance, to specify that certain data or processes be hosted in the United States – or another country, for that matter.

That’s because, largely, of the rapidly proliferating and some times conflicting new regulations flowing out of legislatures and regulatory bodies around the world, in the wake of the credit crisis of 2008.

Before then, “we didn’t even ask that question,’’ Brody said.

Firms, ultimately, shouldn’t think of the jurisdiction of the computing being undertaken, though, said Ken Barnes, senior vice president of the capital markets community platform in the cloud of NYSE Euronext.

“It’s really about the business you’re conducting,’’ Barnes said. Regulators aren’t concerned about regulating, for instance, co-location of facilities under the same roof at a given market. Rather, they’re concerned about regulating market activity.

Trading firms, investors or service providers need to look at applicable rules and if the rules say that data must be stored in a given region, then that becomes part of the upfront requirement. That gets spelled out in agreement with a cloud service provider, he said.

Similarly, that agreement can and should state clearly which country’s laws govern the pact, upfront, said a lawyer in attendance at the discussion at the general membership meeting of the Investment Company Institute in Washington, D.C.

This story originally appeared at Securities Technology Monitor

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