With Sibos only a few days away, I am looking forward to participating on the 'Managing Risk and Compliance in a Digital Era' panel, where we will discuss the evolving cybersecurity threat landscape and current risks posed to the financial services industry. This discussion comes at a time when the rise of technological transformation is inadvertently leaving institutions, their employees and their customers exposed to potential risks. Cyber threat actors are constantly finding new ways to mount sophisticated attacks against the interconnected financial services sector, with market participants becoming increasingly vigilant in protecting their networks. As financial institutions look to capitalize on the wave of digitalization, there are three key areas institutions should consider, remaining one step ahead of the evolving risk landscape.
Ecosystem Interconnectedness
The financial system today is truly global. While the sector’s interconnectivity has provided significant benefits across the industry, such as streamlining global trading and greater access to financial products and services, interconnectedness has also introduced new vulnerabilities. For instance, the interconnectedness created by banks’ cross-border positions has made countries more susceptible to systemic shocks, despite facilitating international capital flows that provide many countries with access to new markets and cheaper funding.
At the same time, institutions are accelerating their reliance on third-party vendors alongside fast-growing fintech-related developments, such as Distributed Ledger Technology (DLT) applications and Cloud Computing, creating new avenues of attack for cybercriminals. Unfortunately, this could produce a domino effect causing significant impacts across the financial services sector.
Therefore, it is more important than ever that financial institutions continue their focus on proactively working to not only protect their institutions but also to build multi-faceted resilience capabilities to facilitate a swift recovery from operational disruptions. These measures are crucial as institutions digitize and increasingly rely on third-party providers and supply chains in the incorporation of new technologies.
Related: Cloud Technology & Data Management: Maximining its Potential
Digital Technologies
As financial institutions work to make digitalization a reality, they are adopting new technologies within their infrastructure to improve efficiency and optimize growth. Using digital technologies such as Artificial Intelligence (AI), Cloud Computing and DLT are reducing the time and cost of financial transactions and transforming the way the financial services sector operates.
AI technologies, for example, are integrating into several cybersecurity products to improve an institution’s ability to identify suspicious activity, ensuring that organizations are alerted to potential threats. However, these new technological abilities are also being used by threat actors to develop new and more sophisticated tools designed to breach an institution’s networked systems.
As an example, cyber threat actors are increasingly using interactive ‘hands on keyboard’ attacks, legitimate credentials, and built-in operating system tools to install custom exploits onto an institution’s systems. To combat this, it is imperative that institutions deploy vulnerability management, sophisticated intrusion detection systems and threat hunting, to create a more resilient technological infrastructure by taking advantage of the new technology introduced by these security products.
"it is more important than ever that financial institutions continue their focus on proactively working to not only protect their institutions but also to build multi-faceted resilience capabilities to facilitate a swift recovery from operational disruptions."
Third Party Providers
Organizations undergoing digital transformations are increasingly turning to third parties to deliver new technologies and critical operations. While partnerships with third parties offer rapid solutions for institutions to access the latest technologies and capabilities, they also increase the surface area for potential threat actors to gain access to an institution, causing cyber incidents that can impact the institution’s operations and potentially create additional sector impacts.
It is vital that institutions monitor and understand the resilience capabilities of their critical third parties used to deliver their products and services. Given the change in today’s threat landscape, many financial authorities, including CPMI-IOSCO and several US financial authorities, have recently updated their guidance to further assist institutions with developing the appropriate controls necessary to manage these risks. More recently, the Digital Operational Resilience Act (DORA) and its supporting regulatory technical standards will strengthen regulations surrounding cyber and Information and Communication Technology (ICT) third-party risk management across the European Union.
Related: Resilient Operations Require a Whole-of-Business Approach
With digitalization continuing to revolutionize the way the financial services sector works, prioritizing a comprehensive cybersecurity and resilience framework must remain a critical consideration across financial institutions. During my Sibos panel, I will be recommending this by suggesting firms take a proactive approach to cybersecurity and resilience planning. Doing so will enable institutions to stay ahead of the curve to facilitate a rapid recovery from cyber and other operational events and to avoid the potential ripple effects that could impact the financial sector at a global level.
This article first appeared in Finextra on September 15, 2023.