Will Regulators Kill the Cloud?

The industry dodged a bullet by adopting cloud computing when it did. I realized this at the Waters USA conference in New York this week.

Regulatory changes taking place in the global markets will definitely have an impact on firms’ infrastructure design, according to Andy Brown, group CTO at UBS, and Madge Meyer, chief innovation officer and technology fellow at State Street.

When grid, and then cloud computing, first gained traction in the industry, the global regulatory regime was relatively stable. Only a few well-known jurisdictions—Switzerland and China—had exceedingly tight data privacy rules compared to the rest of the world.

This allowed global firms to take advantage of cloud computing performance and its economic benefits, as they were able to consolidate several local datacenters into fewer, but larger, regional ones.

Then Bear Sterns and Lehman Brothers collapsed in 2008, and the rules started to change. For the first two years, governments, regulators and the industry were busy just trying to keep the global economy on the rails and global cloud computing architecture continued its dramatic growth.

Now governments and regulators have managed to catch their breath and rein in the capital markets tighter than they have in the past. And these changes will directly affect firms’ technology architecture.

Thomas "Tip" O'Neill, the late speaker of the US House of Representatives, once said that all politics is local. The same goes for regulation. Harmonizing regulation across vast geographies tends to be the exception rather than the rule.

The global economy’s long-term outlook is grim, and national regulators will be looking after their own markets first and probably raise their respective levels of regulation.

During a CTO roundtable at the Waters USA conference, Brown of UBS pointed out new requirements from regulators in Turkey to have financial data and applications reside locally within their jurisdiction. He also mentioned that Singapore was also doing a little regulatory saber-rattling, but that is probably up there with the Cayman Islands saying it would crack down on the financial industry.

According to Brown, these new regulations will lead firms to build architecture that has its cloud and some sort of appliance residing locally in the market.

State Street's Meyer describes it as a global multi-tier architecture where the lowest tier—the cloud—provides universal services throughout the organization, and the top tier addresses all local requirements.

Going into 2012, that top tier is likely to grow as regional data caches, the middle tier, will need to devolve into local data caches.

The silver lining in all of this is that firms will not need to re-invest in local presences on the same scale that they did in pre-cloud days. But they will still have to increase their local footprints.