Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Cyber Risk is the New Threat to Financial Stability
IMF Blog | Jennifer Elliott, Nigel Jenkinson | Dec 7, 2020
Many of us take for granted the ability to withdraw money from our bank account, wire it to family in another country, and pay bills online.Amid the global pandemic, we’ve seen how much digital connection matters to our everyday life. But what if a cyberattack takes the bank down and a remittance doesn’t go through?
As we become more reliant on digital banking and payments, the number of cyberattacks has tripled over the last decade, and financial services is the most targeted industry.
As we become increasingly reliant on digital financial services, the number of cyberattacks has tripled over the last decade, and financial services continue to be the most targeted industry. Cybersecurity has clearly become a threat to financial stability.
See:
Fintech & Cybersecurity: Key Risks and Solutions
Remote Working Cybersecurity Checklist
Cybercrime and Covid-19: Preying on Fear
Given strong financial and technological interconnections, a successful attack on a major financial institution, or on a core system or service used by many, could quickly spread through the entire financial system causing widespread disruption and loss of confidence. Transactions could fail as liquidity is trapped, household and companies could lose access to deposits and payments. Under extreme scenarios, investors and depositors may demand their funds or try to cancel their accounts or other services and products they regularly use.
Hacking tools are now cheaper, simpler and more powerful, allowing lower-skilled hackers to do more damage at a fraction of the previous cost. The expansion of mobile-based services (the only technological platform available for many people), increases the opportunities for hackers. Attackers target large and small institutions, rich and poor countries, and operate without borders. Fighting cybercrime and reducing risk must therefore be a shared undertaking across and inside countries.
While the daily foundational risk management work — maintaining networks, updating software and enforcing strong ‘cyber hygiene’ — remains with financial institutions, there is also a need to address common challenges and recognize the spillovers and interconnections across the financial system. Individual firm incentives to invest in protection are not enough; regulation and public policy intervention is needed to guard against underinvestment and protect the broader financial system from the consequences of an attack.
In our view, many national financial systems are not yet ready to manage attacks, while international coordination is still weak. In new IMF staff research, we suggest six major strategies that would considerably strengthen cybersecurity and improve financial stability worldwide.
Cyber mapping and risk quantification
The global financial system’s interdependencies can be better understood by mapping key operational and technological interconnections and critical infrastructure. Better incorporating cyber risk into financial stability analysis will improve the ability to understand and mitigate system-wide risk.
See:
What brings more risk to the world stability than a pandemic? Cyber-attacks!
SWIFT publishes “Follow the Money” report to aid comprehension of money laundering risks underpinning large-scale cyber-heists
Quantifying the potential impact will help focus the response and promote stronger commitment to the issue. Work in this area is nascent—in part due to data shortcomings on the impact of cyber events and modelling challenges—but must be accelerated to reflect its growing importance.
Converging regulation
More internationally consistent regulation and supervision will reduce compliance costs and build a platform for stronger cross-border cooperation. International bodies such as the Financial Stability Board, Committee on Payments and Market Infrastructure, and Basel Committee, have begun to strengthen coordination and foster convergence. National authorities need to work together on implementation.
Capacity to respond
As cyberattacks become increasingly common, the financial system has to be able to resume operations quickly even in the face of a successful attack, safeguarding stability. So-called response and recovery strategies are still incipient, particularly in low-income countries, which need support in developing them. International arrangements are necessary to support response and recovery in cross-border institutions and
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