It’s well understood that the threats and headwinds facing global finance didn’t disappear with the outbreak of COVID-19. But while Brexit and the US-China trade spat promise short-term disruption and long-term geopolitical realignment, it’s cyber crime that poses the true existential threat to financial stability.
That’s the bottom line of new research from the International Monetary Fund, which found that many financial institutions are still ill-prepared for the new wave of cyber crime.
“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,” said IMF researchers Jennifer Elliott and Nigel Jenkinson.
“Transactions could fail as liquidity is trapped and 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.”
Cyber attacks have more than tripled over the last decade as hacking tools become cheaper and more powerful, allowing unsophisticated attackers to do more damage to financial institutions still grappling to make up ground on the risks posed by their own systems.
“Individual firm incentives to invest in protection are not enough; regulation and public policy intervention are 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,” the researchers said.
The researchers also called for institutions to improve their capacity to respond by ensuring they can resume operations in the face of a successful attack and to be more willing to share information with each other, potentially through a globally agreed template.
“The COVID-19 crisis has highlighted the decisive role that connectivity plays in the developing world…As with any virus, the proliferation of cyber threats in any given country makes the rest of the world less safe,” the researchers said.
The Morrison government recently red-flagged an escalation in cyber attacks by an unknown state-based actor (probably China) while Australia’s largest financial institutions have now been warned several times that they’re dragging their feet on the threat.