Cybersecurity pain points and counteragents in the financial industry

The digital era has created a myriad of opportunities for banks and capital markets, private equity, and asset management firms — and for cybercriminals targeting financial institutions. While innovative system architectures benefit from improved cybersecurity and disaster recovery, the speed at which the industry has transformed also leaves it open to increased risk.

In the past two years alone, cyberattacks have caused disturbing backslides for multiple companies’ finances and reputations, and in 2022 the Federal Reserve reported that cyberattacks pose the single biggest risk to financial institutions globally. 

Leaders in the industry know that the best approach to security is one that anticipates with certainty a future attack — not just the possibility of one. Cybercriminals are highly motivated, and as they work harder and get more sophisticated — even harnessing automation and machine learning to expose vulnerabilities — risks in banking, capital management, and private equity are expected to increase. In this article, we’ll explore what financial leaders should anticipate in 2023 and how they can best prepare themselves.

Cybercrime concerns across financial services

The financial services industry is one of the most heavily regulated and monitored industries in the world, and for good reason. Financial institutions hold vast amounts of sensitive information, from personal financial details to trade secrets, and they are responsible for safeguarding this information. However, with the rapid rise of technology and digital transformation, the many types of financial companies face a variety of growing cybersecurity challenges. For example:

Banking and capital markets

The more convenient and accessible banking services become, including those provided via mobile, ATM, and interbank transactions, the more plentiful points of entry become for attackers. Cyberattackers who gain access to these systems can use the information for identity theft and financial fraud.

All these systems are linked on complex, extensive IT networks that are critical for their operations and present many potential points of attack that all need to be protected. Attackers may take advantage of relatively light security on mobile apps or attack an ATM that isn’t closely watched with a skimmer or malware.

Asset management

The financial systems that manage assets, including stocks, bonds, and real estate, for individuals and organizations, are increasingly targeted by cybercriminals because they hold large amounts of financial information, including trade secrets and investment strategies. Wealth and asset managers must protect this proprietary and confidential information. This highly valuable information can be used by cybercriminals to gain unfair advantages in the capital markets.

In addition, wealth and asset managers are lucrative targets for phishing and social engineering that can lead to fraud — potentially causing significant financial losses for the targeted business or organization.

Private equity

In many cases, private equity firms are challenged by the aggregate cyber risk across their portfolio companies and, if these risks are not managed appropriately, there could be extensive exposure and ultimately financial loss for investors.

Private equity firms also often work closely with multiple third-party vendors and service providers such as law firms, accounting firms, and IT companies. These third parties could potentially have access to sensitive data and systems, making them a potential entry point for cyberattackers.

By illegally entering an IT environment, hackers can infect or steal massive caches of data. Through system failures, privacy breaches, and ransomware attacks, access to these various types of personal and private information makes it possible for criminals to steal money, engage in insider trading, and hold companies hostage. Uninsured enterprises that experience cyberattacks incur significant costs related to both business interruption and liability.

Adopting a proactive preventative strategy 

As cyber risks expand and evolve, so must a proactive defense strategy and response plan. Financial service providers need a robust cybersecurity program that includes

Implementing cybersecurity capabilities to protect important data

Strong access controls are needed to limit access to sensitive systems and data. This can include multifactor authentication, role-based access controls, and regular access reviews to ensure that only authorized personnel have access to sensitive data. Asset management companies should also encrypt sensitive data, both at rest, in transit, and while in use. Encryption can help to protect against unauthorized access to data, even if a cyberattacker is able to gain access to a company’s systems.

Phishing and social engineering protection

Asset management companies should implement strong email security policies and procedures, including multifactor authentication, email filtering, spam protection, and regular employee training. They should also have processes in place to verify any requests for financial transactions or sensitive information, particularly if the request is flagged by security software as an anomaly, or if it appears to be unusual or urgent.

Governance and oversight of cybersecurity for portfolio companies

Private equity companies should take the extra steps of defining strategies for managing and monitoring cyber risks within their portfolio companies. And regular check-ins should be implemented to help ensure the portfolio companies are managing cyber risk appropriately. Private equity companies should also create strategies to conduct thorough due diligence on potential portfolio companies to identify any cyber risks.

Insurance can help in the event of a cyberattack

A recent report announced that in 2023 and beyond, cyberattack capabilities and scope will continue to grow. Financial leaders looking to help protect data for continued business success in the digital era require leading cyber coverage from a leading insurance provider. Partnerships with insurance vendors and risk-management experts can provide a business with the necessary support in crises to help limit downtime and manage liability.

In a world where companies rely on brand loyalty, reputation is king. Following a data breach or other cyberattack, a swift and tactical response not only limits further harm to finances and data, but it helps heal reputational damage. Cyber insurance can help cover costs associated with: 

• Informing customers about a data breach 
• Credit monitoring to check for suspicious activity 
• Legal costs
• Revenue loss due to downtime or outages
• Repairing damaged systems
• Investigative forensics (to identify the source of the vulnerability)
• Public relations support 
• Reputational harm

 

Cyber insurance increases financial, reputational, and customer safety

Cyber coverage is not a one-size-fits-all service. Liberty Mutual’s underwriters and claims experts understand the specific types of cyberattacks that threaten the financial sector, and they can work with individual companies to strategize around their unique needs.