ECB Finalises Guide on Cloud Service Outsourcing for Banks
- James Ross
- Jul 17
- 4 min read
Executive Summary
On July 16, 2025, the European Central Bank (ECB) published its final guide for banks on outsourcing cloud services. This guide aims to clarify supervisory expectations, particularly about the Digital Operational Resilience Act (DORA), and to bolster the operational resilience of the financial sector. While not legally binding, the guide outlines a set of "good practices". It emphasises the importance of banks maintaining a robust, risk-based approach to managing their relationships with Cloud Service Providers (CSPs). The document stresses that ultimate responsibility for risk management remains with the banks, even when services are outsourced.
Background and Purpose
Following a consultation period in June 2024 that gathered feedback from 26 respondents, the ECB refined its draft guide. The final version more clearly distinguishes between the formal requirements of DORA and the ECB's recommended best practices.
The primary objectives of the guide are to:
Address Key Risks: Tackle the risks associated with the high concentration in the cloud market, reliance on proprietary technologies, and challenges in monitoring and auditing cloud environments.
Remedy Deficiencies: Correct identified weaknesses in the current ICT outsourcing practices of supervised entities.
Align with DORA: Provide clarity on the ECB's interpretation of DORA's requirements for third-party risk management and foster consistent supervision across the sector.
The guide emphasises proportionality, acknowledging the diverse sizes, business models, and risk profiles of the banks under ECB supervision.
Key Supervisory Expectations
The guide details the ECB's expectations across five critical domains:
1. Governance of Cloud Services
Ultimate Responsibility: Banks retain full and ultimate responsibility for managing ICT risks.
Risk Assessment: A thorough risk assessment must be conducted before entering any cloud outsourcing agreement, covering vendor lock-in, data storage, geopolitical risks, and concentration risk.
Strategic Alignment: The cloud strategy must be integrated with the bank's overall business strategy and ICT risk appetite.
2. Availability and Resilience
Business Continuity: Banks must implement comprehensive business continuity and disaster recovery plans for all cloud solutions. This includes robust, segregated backup policies and regular testing.
Critical Functions: For critical functions, banks should implement enhanced resilience measures, such as using multiple data centres in different geographic regions or adopting a multi-cloud/hybrid-cloud strategy.
CSP Oversight: Banks must actively oversee and assess their CSPs' disaster recovery plans and tests, rather than solely relying on third-party certifications.
3. ICT and Data Security
Data Protection: Strong data protection measures are mandatory, including high levels of encryption for data in transit, at rest, and in use. Cryptographic keys must be unique and securely managed.
Geopolitical and Location Risk: Banks must consider geopolitical risks, establish approved lists of countries for data processing and storage, and ensure consistent security standards across all locations to mitigate potential risks.
Identity and Access Management (IAM): Robust IAM policies must extend to cloud environments, enforcing segregation of duties, multi-factor authentication, and regular reviews of access rights.
4. Exit Strategies and Termination Rights
Comprehensive Exit Plans: For critical functions, banks must develop detailed, tested, and fully costed exit plans before the service goes live. These plans must ensure data portability and a smooth transition to an alternative provider or back in-house.
Termination Rights: Contracts must grant the bank clear rights to terminate the agreement under specific circumstances, such as poor performance, security breaches, or unfavourable changes in legislation.
Granularity: Exit plans should be highly detailed, outlining all milestones, tasks, required skills, and timelines for a successful transition.
5. Oversight, Monitoring, and Internal Audits
Independent Monitoring: While monitoring tasks can be delegated, the bank is responsible for verifying compliance. The use of independent monitoring tools is recommended.
Incident Reporting: Clear procedures must be in place for managing and reporting on incidents originating from the CSP that affect the bank.
Audit Rights: The bank's internal audit function must possess the necessary expertise and authority to assess cloud-related risks regularly. Contracts must grant the bank and its regulators full access and audit rights, with joint audits being an encouraged practice.
Implications for Financial Institutions
The ECB's guidance signals a significant increase in supervisory focus on the risks associated with cloud adoption. For banks, the key takeaways are:
Proactive Risk Management: A shift is required from basic due diligence to a continuous, sophisticated risk management framework for all cloud arrangements.
Enhanced Governance: Firms must establish strong internal governance with clear accountability for overseeing CSPs, moving beyond reliance on certifications.
Actionable Exit Strategies: Exit plans can no longer be a theoretical exercise. They must be practical, detailed, and regularly tested to ensure their viability.
Investment in Expertise: Banks must invest in developing in-house expertise in cloud technology, security, and resilience to manage and challenge their CSPs effectively.
Contractual Rigour: Outsourcing agreements must be meticulously drafted to include robust clauses on security, audit rights, data management, and termination, ensuring the bank maintains control.
In conclusion, the ECB is pushing for a more diligent, self-reliant, and proactive approach from banks to ensure that the benefits of cloud adoption do not come at the cost of operational and financial stability.
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