Financial institutions have adopted cloud services in a big way, using hyperscalers for transaction systems, customer platforms, analytics, fraud detection, risk modeling, and cybersecurity tooling. But as critical functions consolidate among a small number of providers, the monopolization concern overlaps with a critical one — operational resilience. Concentration is not just a buyer‑seller issue; it can become a sector‑wide risk.
Agencies are already focused on cloud risk management
In the United States, the Federal Financial Institutions Examination Council (FFIEC) issued a statement on risk management for cloud computing services, emphasizing sound risk management practices, due diligence over cloud provider relationships, clarity on shared responsibilities, and ongoing oversight and monitoring. The Department of Health and Human Services (HHS) has offered Guidance on HIPAA & Cloud Computing.
In the UK, the Prudential Regulation Authority’s (PRA) Supervisory Statement SS2/21 sets expectations for outsourcing and third‑party risk management, including governance, record‑keeping, access and audit rights, sub‑outsourcing controls, data security, business continuity, and tested exit strategies—and it applies to banks and insurers.
In the EU, the European Banking Authority’s outsourcing guidelines (which integrate earlier cloud outsourcing recommendations) establish a harmonized supervisory framework for outsourcing arrangements, including governance expectations for critical or important functions.
These frameworks are not antitrust rules, but they illuminate why concentration matters: if a hyperscaler’s market power limits effective oversight, negotiating leverage, or realistic exit options, both competition and resilience suffer.
For more on U.S. and European agency activity in this space, read our previous post: Are Clouds Too Sticky? Antitrust Authorities Probe Lock-In Pricing Complaints.
How hyperscaler monopolization affects financial services players
Pricing power hits “run‑the‑bank” operations
Financial services are always‑on data‑intensive critical systems. When they become dependent on a dominant provider, price increases or unfavorable pricing structures can affect storage, managed databases, security logging, interconnectivity, advanced analytics, and AI tools. FFIEC emphasizes that management should not assume effective security and resilience controls exist simply because systems operate in the cloud and that contractual agreements should define service expectations and control responsibilities. In a concentrated market, however, contractual leverage may diminish, making cost and control outcomes more provider‑driven.
Lock‑in becomes a governance and resilience issue
Lock‑in is not just about inconvenience. In regulated financial institutions, lock‑in can undermine exit planning and resilience, which regulators increasingly expect firms to demonstrate. PRA’s SS2/21 explicitly focuses on business continuity and exit plans for outsourcing and third‑party arrangements. If effective exit is impractical due to proprietary managed services, data gravity, or egress constraints, market power deepens, and resilience becomes harder to prove.
Sector‑wide concentration enlarges the systemic “blast radius”
If many banks and insurers rely on the same hyperscaler(s), outages or cyber events can create correlated disruptions. FFIEC stresses ongoing oversight and monitoring of cloud service providers to gain assurance cloud computing services are being managed consistent with contractual requirements and in a safe and sound manner. But firm‑level monitoring cannot fully eliminate correlated risk when the underlying market structure is concentrated.
Market power can shape adjacent competition in fintech and insurtech
Hyperscalers do not only supply infrastructure; they also provide managed databases, analytics platforms, AI tools, marketplaces, and reference architectures that can steer customers toward deeper platform dependence. When discounts and integrations reward consolidation of workloads within one ecosystem, smaller competing providers and third‑party vendors can be disadvantaged—an important antitrust concern in industries where innovation is often driven by smaller, specialized firms.
Insurance adds distinctive dependence: catastrophe modeling and claims automation
Insurers increasingly rely on cloud compute for catastrophe modeling, remote sensing analysis, claims automation, and fraud detection. These are workloads where access to scalable compute, specialized tooling, and large datasets can “pull” customers into dominant clouds—another path to durable dependence and reduced bargaining power.
Where dominance causes real compliance and operational friction
- Access, audit, and information rights: The UK Prudential Regulation Authority (UK PRA) highlights access, audit, and information rights as a key area of outsourcing and third‑party risk management. In a concentrated market, firms may face “standardized” audit packages that do not fully align with their internal risk assessments.
- Sub‑outsourcing visibility: UK PRA’s SS2/21 addresses sub‑outsourcing expectations. Complex subcontractor ecosystems can reduce transparency and complicate incident response and accountability.
- Shared responsibility alignment: The U.S. FFIEC — a congressionally established interagency committee — underscores the need to understand shared responsibilities between cloud service providers and financial institutions. In practice, dominant providers can set default models that shift burdens to customers, increasing compliance cost and operational complexity.
Mitigation steps that align with both risk management and competitive resilience
- Concentration mapping by service, not just provider: identify whether identity, KMS, logging, managed DB, CI/CD, and network dependencies are single‑provider.
- Exit‑ready architecture for critical workloads: avoid unnecessary proprietary lock‑in and document practical portability paths.
- Operational resilience testing: run “provider impairment” tabletop exercises (not just region failure) and validate recovery assumptions.
- Contract discipline: ensure outsourcing agreements address audit rights, sub‑outsourcing governance, and exit planning—consistent with supervisory expectations.
- Fourth‑party transparency: require material vendors to disclose their own hyperscaler dependencies.
Financial services & insurance face a unique mix of antitrust and prudential exposure when cloud infrastructure concentrates. FFIEC’s cloud risk management statement and PRA’s SS2/21 both emphasize governance, clarity of responsibilities, oversight, and exit planning—precisely where market concentration can erode negotiating leverage and expand systemic risk.
Editor’s note: The mitigation measures described above reflect a synthesis of, and are consistent with, supervisory guidance issued by the Federal Financial Institutions Examination Council (FFIEC), U.S. federal banking regulators, and NIST cybersecurity and supply‑chain risk frameworks. Collectively, these authorities address service‑level concentration risk, operational resilience testing, exit and substitutability planning, contractual governance of outsourced technology services, and transparency into third‑ and fourth‑party dependencies.
Sources: Federal Financial Institutions Examination Council, IT Examination Handbook (including the Architecture, Infrastructure, and Operations Booklet and the Outsourcing Technology Services Booklet); FFIEC Joint Statements on third‑party risk management and operational resilience; NIST SP 800‑161 Revision 1, Cybersecurity Supply Chain Risk Management Practices; NIST SP 800‑53 and NIST SP 800‑34 (security and contingency planning controls); and related supervisory and industry guidance on operational resilience, exit planning, and fourth‑party risk management.