HKMA Sets Out Guidance on Adoption of Cloud Computing

Given the increasing trend of the adoption of cloud computing and the risks it presents, HKMA considers it appropriate to set out its supervisory expectations on this area in a holistic manner. The supervisory expectations on cloud computing, as outlined below, have been developed with reference to the results of a round of on-site examinations by HKMA between 2021 and 2022: 

• Governance framework. Institutions should put in place an effective governance framework, overseen by the Board of Directors and senior management, for cloud computing to enable them to formulate a cloud strategy suitable for their circumstances and have it updated from time to time. A proper due diligence process should be established to assess the capabilities and suitability of a cloud service provider before the engagement and regularly during the engagement.
• Ongoing risk management and controls. Institutions should clearly understand their roles and responsibilities under the agreement with the cloud service provider and put in place corresponding controls to ensure the effective discharge of their responsibilities. A comprehensive set of risk management procedures should be developed to enable the institution to continually identify, monitor, and mitigate the risks posed by cloud computing. Also, effective controls should be established to ensure the security of the information assets and their compliance with relevant statutory requirements regarding customer data confidentiality. A viable and effective contingency plan should be developed to cope with situations involving a disruption of cloud computing services.
• Protection of access and other legal rights. There should be suitable arrangements to guarantee audit rights of institutions, along with the supervisory access to information stored in the cloud and relevant risk management controls for the purposes of undertaking on-site examinations. A clear and enforceable cloud service provider engagement agreement should be in place to protect institutions’ interests, risk management needs, and ability to comply with supervisory expectations.
• Risk management capabilities. Institutions should equip staff overseeing cloud operations with the knowledge and skills required to securely use and manage the risks associated with cloud computing. 

Authorized institutions should apply this guidance proportionately and in a way that is commensurate with the criticality of their cloud adoption and the potential impact that cloud computing may have on their risk profile. Institutions should note that the below principles serve to complement, and should be read in conjunction with, the relevant existing HKMA guidance, including SPM Modules SA-2 on “Outsourcing,” OR-2 on “Operational Resilience,” and TMG-1 on “General Principles for Technology Risk Management.”

Keywords: Asia Pacific, Hong Kong, Banking, Regtech, Cloud Computing, Operational Resilience, Operational Risk, Basel, Outsourcing Risk, HKMA