The recent instability of a major bank that catered to US tech startups caused concern for several prominent tech companies and venture capitalists, resulting in a decline in banking shares globally. The meltdown and revival of SVB has received much attention, but an important lesson learned is that banks are interconnected and the impact of one will invariably affect others. This is also true when it comes to cybersecurity.
Industry analysis revealed that cybercrime costs nations over $1 trillion globally, and cyberattacks were ranked as the top threat facing the business world today, ahead of other risks such as terrorism and asset bubbles. It is, therefore, crucial that security teams in financial institutions take proactive measures to reduce the risks of cyberattacks.
The Impact of Cyberattacks on Financial Institutions
Recent cyberattacks on financial systems have made it abundantly clear that our financial infrastructure is vulnerable to malicious actors. As the world becomes increasingly interconnected, the risk of a major cyberattack leading to a financial crisis has become all too real. Cyber criminals are able to exploit weak security protocols to steal data, manipulate markets, and disrupt business operations. If left unchecked, these malicious activities could lead to a rapid loss of confidence in the global financial system and cause economic damage on an unprecedented scale.
Banks connected through financial and operational networks may be exposed to the threat of multiple cyberattacks. If one is compromised, it can lead to a chain reaction affecting others. The financial contagion of a central bank can have widespread consequences that disrupt global finance operations by impeding the flow of credit between financial institutions.
What the experts say
The study, "Cyber Risk and the U.S. Financial System", conducted by economists Thomas Eisenbach, Anna Kovner, and Michael Junho Lee examined the potential amplification of a cyberattack through the wholesale payments network of the U.S. financial system. The authors of the study suggest that the impairment of the top five U.S. banks could cause spillover effects to other banks, affecting an average of 38% of the network. The results of a reverse stress test indicate that focusing on small clusters of banks can have a notable effect on the entire network.
According to the researchers, a successful attack could have the potential to greatly impact businesses, governments, and individuals with money in a bank, potentially leading to a decline in the economy.
What are the potential causes that may lead to the next economic crisis?
Various international hacker groups, including the Anonymous group, Syrian Electronic Army, Fancy Bear, and Lazarus Group, have the potential to initiate an attack. There is a hacking group called Carabank that emerged in 2013 and has been able to obtain close to $1 billion from banks globally. These groups are becoming more sophisticated and cautious, and an attack on a central bank, stock exchanges, ATM networks, the SWIFT interbank messaging system, or the Federal Reserve could have significant economic repercussions.
It is also important to consider the potential for attacks from various less-known sources, such as corporate spies, hacktivists, and criminal organizations, which could have unintended consequences and quickly escalate.
Intentional or unintentional attacks could have severe consequences, including:
- Financial services breaches can have severe impacts, leading to significant financial losses for individuals and businesses. Disruption of a central bank's website or online banking services can cause customers to be unable to access their accounts, transfer funds, or make payments, which may result in financial instability.
- If a breach were to occur in a clearinghouse or financial infrastructure that serves as a central hub for transactions between financial institutions, there is a possibility of systemic risk. The clearinghouse's failure could lead to a sequence of defaults and losses that could propagate throughout the financial system.
- A cybersecurity breach may cause data loss, which could have financial ramifications.
- The compromise of critical infrastructure, including payment systems, exchanges, and clearinghouses, could result in transaction failures and limited access to deposits and payments for households and companies. Financial institutions depend on this infrastructure for conducting transactions and managing risk.
The central banks will likely recover, but the process will be gradual and the repercussions will persist.
Is your encryption infrastructure adequately equipped?
As financial institutions in the banking, financial services and insurance space face increasingly sophisticated cyber threats, it's essential to have a multi-faceted preventive approach. This should include technical and legal measures as well as diplomatic efforts.
One of the cornerstones of the technical security measures is the use of strong encryption and strong key management solutions. The best solutions will consolidate complex operations behind a single unified interface, making it easier for businesses to manage their data security and improve their efficiency.
If your organization operates in the Banking, Financial Services, and Insurance sector, it is important to consider the below questions with regard to encryption and cryptographic security:
- Can your encryption tools assist with key management operations and enhance efficiency?
- What is the necessary personnel requirement for your firm to manage and support cryptographic security operations and key management?
- Does your encryption system provide integrated data security features such as Tokenization, Secrets Management, Database Encryption, and App-level Encryption all in one interface?
- Can your encryption platforms handle increased financial transaction volumes in a scalable manner?
- Does your encryption solution support crypto agility for swift security policy modifications in the event of a breach?
Cryptomathic Crypto Service Gateway provides comprehensive and agile cryptographic security
Cryptomathic's Crypto Service Gateway (CSG) can be described as a cryptographic control center responsible for the complete provisioning and management of cryptography and key management. CSG is designed to be flexible and scalable, allowing organizations to make rapid changes to their encryption policies and easily integrate new algorithms and protocols into their existing infrastructure. This makes it easier for organizations to stay ahead of the curve when it comes to existing risks as well as upcoming threats, such as quantum computing.
Cryptomathic has over 35 year's experience in providing strong cryptographic solutions to businesses across the globe. We have worked with many prominent names in the banking and financial industry to secure their data by providing FIPS 140-2 L3 data security solutions for data encryption, key management, crypto agility, tokenization, and more.
Download the WP on "Achieving Real-World Crypto-Agility for Financial Institutions" or contact us to discuss your requirements.