Growing Cyber Threats to the Financial System Demand Global Cooperation

In February 2016, hackers targeted the central bank of Bangladesh, exploiting weaknesses in SWIFT, the global financial messaging system used for electronic payments. Their attempt to steal?1 billion was partially successful, with 101 million vanishing despite most transactions being blocked. This incident served as a stark reminder that systemic cyber risks in the financial sector had been dangerously underestimated.

Today, it is widely accepted that a major cyberattack could destabilize the global financial system. The question is no longer?if?such an attack will occur, but?when. Despite this, governments and corporations worldwide continue to grapple with how to address the threat, largely due to unclear accountability for safeguarding the system. Prominent figures have raised alarms. In February 2020, European Central Bank President Christine Lagarde, former head of the International Monetary Fund (IMF), warned that a cyberattack could trigger a severe financial crisis. Similarly, the Financial Stability Board (FSB) emphasized in April 2020 that a significant cyber incident could disrupt critical financial infrastructure, with far-reaching implications for global financial stability. The economic costs of such events could be staggering, eroding public trust and confidence in the financial system.

Two Key Trends Amplifying the Risk

1. Digital Transformation Accelerated by COVID-19 The global financial system is undergoing rapid digitalization, a process accelerated by the pandemic. Banks and tech companies are increasingly competing and collaborating, while the shift to remote work has heightened demand for online financial services. Central banks worldwide are exploring digital currencies and modernizing payment systems. However, this transformation also creates vulnerabilities. A single cyber incident could undermine trust and derail innovation, making robust cybersecurity measures more critical than ever.
2. Rising Threats from Malicious Actors Cybercriminals and state-sponsored attackers are exploiting the digital shift, posing escalating risks to financial stability and system integrity. The pandemic has provided new targets for hackers, with the financial sector experiencing the second-highest number of COVID-19-related cyberattacks, trailing only the healthcare industry, according to the Bank for International Settlements.

Who Are the Threat Actors?

Future attacks are expected to be more sophisticated and damaging, particularly those targeting the integrity of financial data, such as records, algorithms, and transactions. Such attacks could severely erode trust, and few technical solutions currently exist to counter them.

This is a global issue. While high-income countries often dominate headlines, low- and middle-income countries are increasingly targeted due to their rapid adoption of digital financial services, such as mobile payment systems. These services, while promoting financial inclusion, also present lucrative opportunities for hackers. For example, an October 2020 attack on Uganda’s largest mobile money networks, MTN and Airtel, disrupted services for four days, highlighting the vulnerability of emerging digital economies.

The Accountability Gap

Despite the financial system’s growing reliance on digital infrastructure, there is no clear consensus on who is responsible for defending it against cyber threats. This ambiguity stems from the rapid pace of change in the digital landscape. Without decisive action, the system will only become more vulnerable as innovation, competition, and the pandemic continue to drive digital transformation. While many attackers aim for financial gain, purely disruptive attacks are on the rise. Moreover, those who learn to steal financial data also gain insights into the system’s networks and operations, enabling more destructive future attacks or the sale of such knowledge to others.

The fragmented response to these threats exacerbates the problem. Financial regulators focus on resilience, diplomats on state behavior norms, national security agencies on deterring malicious activity, and industry leaders on firm-specific risks. This lack of coordination weakens the global financial system’s collective ability to respond to cyber threats.

A Call for International Collaboration

To address these challenges, the Carnegie Endowment for International Peace, in collaboration with the World Economic Forum, released a November 2020 report titled?“International Strategy to Better Protect the Global Financial System against Cyber Threats.”?The report outlines a four-pronged approach to reduce fragmentation and enhance cooperation among governments, financial institutions, and tech companies:

1. Clarify Roles and Responsibilities Few countries have established effective domestic collaboration among financial authorities, law enforcement, diplomats, and industry. Clearer roles and responsibilities are essential to strengthen the system’s resilience and response capabilities.
2. Prioritize International Collaboration Given the global nature of the financial system, individual efforts by governments or companies are insufficient. Collective action is urgently needed to mitigate cyber risks.
3. Reduce Fragmentation Many initiatives to protect financial institutions are siloed, leading to duplicated efforts and increased costs. Better coordination and internationalization of these efforts are critical.
4. Use the Financial System as a Model The financial sector’s shared interest in cooperation, even amid geopolitical tensions, makes it an ideal starting point for developing strategies that could later be applied to other sectors.

Key Recommendations

• Strengthening Cyber Resilience The FSB should develop a framework for supervising cyber risk management at financial institutions. Governments and industry should enhance security by sharing threat intelligence and establishing financial computer emergency response teams (CERTs), modeled after Israel’s FinCERT.
• Protecting Data and Algorithms Financial authorities should prioritize securing data and algorithms, including encrypted data vaulting for overnight backups. Regular cyberattack simulations can help identify vulnerabilities and develop action plans.
• Reinforcing International Norms Governments should clarify how international law applies to cyberspace and strengthen norms to protect financial system integrity. Countries like Australia, the Netherlands, and the UK have already taken steps by declaring that cyberattacks may constitute illegal use of force or intervention.
• Building Cybersecurity Capacity The pandemic-induced rise in unemployment presents an opportunity to train and hire cybersecurity talent. Financial firms should invest in educational programs to build a skilled workforce. International organizations like the IMF could coordinate efforts to enhance cybersecurity capacity, particularly in developing countries.
• Safeguarding Financial Inclusion As digital financial services expand, particularly in Africa, it is crucial to strengthen the link between financial inclusion and cybersecurity. A network of experts focused on cybersecurity in Africa could help address this urgent need.

Conclusion

The global financial system faces an escalating cyber threat that demands immediate and coordinated action. Governments, central banks, regulators, and industry leaders must come together to implement a comprehensive strategy that addresses accountability, fosters international collaboration, and builds cybersecurity capacity. By doing so, they can protect not only the financial system but also pave the way for securing other critical sectors in the future. The time to act is now.