Luxembourg: The CSSF's New Cloud Circular: Governance Is King

Last Updated: 7 July 2017
Article by Philippe Bovy
Most Read Contributor in Luxembourg, September 2019

The long-awaited circular for financial institutions operating in Luxembourg and leveraging cloud services1 has been released by Luxembourg's financial authority, the CSSF.

The circular will change the landscape of cloud services in Luxembourg, as from now on cloud service providers (IaaS, SaaS, and PaaS) will not have to be regulated by the CSSF anymore, nor will their data have to be hosted in Luxembourg (as long as the client provides consent). The new directive additionally provides clear guidelines for organizations that are considering cloud services as part of their IT supply chain. The guidelines could be summarized as honoring one prime goal: stronger governance.

Both business and IT stakeholders should welcome these new clarifications on the key roles and responsibilities for the different actors of a cloud delivery model. For too long, cloud services have been contracted too easily by some organizations, without an appropriate governance framework, probably because cloud service was perceived as a commodity. But being a commodity doesn't mean that governance is not required. In the extreme, the absence of governance has led to "shadow IT" where business leaders contract directly with third parties, managing contracts and SLAs themselves, with unwanted consequences such as inconsistent support for end-users and security risks for the organization.

Cloud officers: key to risk management

The "cloud officer" is the new role that must be fulfilled either by the financial institution ("ESRC" in the parlance of the circular) or the resources operator (which is the external organization managing the cloud services if the ESRC doesn't manage them). The cloud officer's main responsibility is to have a clear picture, at all times, of the physical location of the organization's hosted data. He/she must also clearly define, together with selected cloud providers, the appropriate recovery process in case of disaster. This is to ensure continuity for the business entities relying on the cloud services.

The cloud officer will support the ERSC in the corporate risk management process by providing his/her views on all the risks (and corresponding mitigation) when migrating data and workload (applications) to the cloud. We talk here not only about the traditional risks linked to sub-contracting services to a third-party, such as financial and stability risks bound to the selected vendor, but also of geopolitical risks and of legal issues if the cloud provider is established in another country. Technical risks embedded in a cloud solution design (e.g. due to the environment being isolated in a multi-tenant architecture, or the security of data during transit) will need to be highlighted and tracked as well.

(In the context of the traditional roles involved in IT infrastructure outsourcing, the cloud officer should be seen to a "super" service delivery manager with a risk management role regarding activities outsourced to the supplier).

The cloud officer: a strategic asset for the GDPR journey

Although GDPR compliance is not mentioned in the circular and was not the main driver for deploying a cloud officer, the CSSF's request for the role is nevertheless a good step towards GDPR compliance. As a reminder, GDPR requirements apply to the entire lifecycle of the personal data within the organization, from data collection and archiving to data deletion. The cloud officer will have a strategic role in protecting company and client data by keeping an updated inventory and blueprints about which data are hosted by cloud providers. By the same token, a clear view of the primary location for these data and their possible replication will be key. Similarly important will be having eyes on the processes in place with cloud providers for handling data disposal at the end of the data lifecycle. The cloud officer will have to agree with the cloud provider on the control points ensuring that GDPR requirements are fulfilled and data governance is implemented across the cloud service portfolio.

Revisiting the cloud services outsourcing framework

Over the past years, many organizations opting for a public cloud journey have overlooked (you could even say ignored) many considerations which should be common practice in a due diligence process when it comes to deciding on a new vendor or technology. This is probably again because cloud services were being perceived as a commodity.

The new CSSF directive thankfully reinstates the same discipline for selecting cloud services as that which organizations have been using for ages when it comes to selecting an IT outsourcer (for infrastructure or application services). Some considerations to be included in the cloud vendor due diligence and contractual process are:

  • defining RACI detailing roles and responsibilities of the players across the cloud services supply chain (ERSC, cloud operator, and cloud service providers)
  • understanding the business continuity framework for the cloud provider (which should provide resiliency for both operations and data within the EU)
  • describing "exit" procedures that detail how the organization's data should be migrated to another provider upon contract termination (unless the data is to be disposed of)
  • In addition to comprehensive reporting, readiness to unconditionally accept any audit requested by the client or even by the regulator

...this is just to name a few!

For many years, cloud services have been largely considered in IT transformation roadmaps in "IT for IT" scenarios, where IT managers have evaluated business cases for deploying cloud resources in replacement of on-premises infrastructure with the goal to increase agility and optimize costs. This technical-only dimension has now been superseded by an overall governance dimension which will force organizations to keep full control of the vendor management, to deploy the processes required, and to oversee the control points that keep data traceable as it is migrated into the cloud.


1 CSSF Circular 17/654

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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