An increasing reliance on a small number of cloud service providers (CSPs) could “increase financial stability risks” without greater regulatory oversight, a Bank of England report has found.

The Financial Policy Committee (FPC) has previously highlighted that the market for cloud services is highly concentrated among a few CSPs, which could pose a threat to financial stability.

Since the start of 2020, financial institutions have accelerated their plans to scale up their reliance on CSPs.

Although the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have recently strengthened the regulation of firms’ operational resilience and third party risk management, the bank said that the growing reliance on a limited number of CSPs and other critical third parties could heighten risks without better direct regulation of the services they provide.

The FPC is of the view that additional policy measures to mitigate financial stability risks in this area are needed, and welcomes the engagement between the Bank, FCA and HM Treasury on how to tackle these risks.

“The FPC recognises that absent a cross‐sectoral regulatory framework, and cross‐border co‐operation where appropriate, there are limits to the extent to which financial regulators alone can mitigate these risks effectively,” said the bank.

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