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Escrow vital for banks choosing cloud computing, says provider

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Financial services firms are using cloud computing with increasing frequency, but often forget to protect the software they invest in, a software security firm has said. It said its escrow services were as vital for remote as for traditional computing.

Software as a Service (SaaS), a form of cloud computing, is increasingly commonly used, especially in the financial sector, according to NCC Group, which provides software escrow services. But companies need to think about escrow as much as they would for traditional software, it said.

Software escrow is the placing of the software's source code with a trusted third party. The supplier and customer agree that the code will be released in identified circumstances, such as the supplier no longer being able to support the product.

Escrow is designed to ensure that customers are not left with unusable products if a company goes bust or fails in its promises to support and update a product.

"Uptake of SaaS in the financial sector has been rapid and widespread, with businesses attracted by the model’s cost and time saving benefits," said an NCC statement. "However, confusion over contractual obligations or intentional contract omissions from the provider to avoid heightened responsibility can expose companies to business continuity problems, which could seriously impact business-critical functions."

NCC's escrow director, Jon Leigh, said that users of SaaS could be in serious trouble if they do not have a usable and changeable copy of the software they used stored with an intermediary. He said that a supplier's collapse could leave those companies in an even worse state than those which use more traditional software.

"The consequences of losing access to a business-critical application are magnified when the application and end user data are stored elsewhere, as with SaaS," he said. "An extended or permanent outage not only removes the user’s ability to support the application in the event of an error; it prevents them from accessing the application, its platform and their data altogether."

"The effects are immediate and can cause serious damage to an organisation. The SaaS model’s popularity amongst financial services companies is well founded, but they need to be protected," said Leigh.

When a company buys software or software services it is generally not given access to the source code. Without source code access it is impossible to change, update, modify or support a piece of software.

Escrow allows a customer access to the source code if any of the trigger events pre-agreed between customer and supplier come to pass.

Leigh said that customers should think twice about using software from a company which refuses to allow the use of escrow.

"It is essential in any business relationship, especially during a recession, for a provider to instil confidence in its customers, and SaaS providers are becoming aware of this," he said. "If they are unwilling to appease a company which is keen to secure access to a critical application should it become unavailable, it’s probably time for the business to look elsewhere."

Copyright © 2009, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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