The number of cyber attacks has more than doubled since the outbreak of the corona pandemic. That combined with an ever-increasing degree of digitization, the rapid rise and development of artificial intelligence (AI) and other advanced technologies, and rising geopolitical tensions worldwide, poses a serious threat to financial stability. To mitigate the disruptive consequences, both government and industry must develop response and recovery protocols and crisis management frameworks. The International Monetary Fund (IMF) warns of this in a report. In it, the UN organization expresses concerns about the financial stability of the global economy.
Researchers note that the number of cyberattacks worldwide has skyrocketed since the beginning of the corona pandemic. As a result, companies and organizations risk major financial losses and business continuity. Financial losses from cyber attacks have more than quadrupled to $2.5 billion since 2017. If we include indirect damages such as reputation and image damage, the actual damages suffered are significantly higher.
The financial sector is the most frequent target of hackers. This is because they handle large amounts of sensitive data and transactions. Consequently, financial institutions such as banks account for one-fifth of all cyber attacks.
According to the IMF, such incidents erode confidence in the financial system and can also disrupt critical services, or spread to other agencies. This, in turn, affects global financial and economic stability. In the worst scenario, this could lead to a bank run. People then withdraw money en masse because they fear losing their money. This compromises the liquidity of banks.
"Although no significant 'cyber runs' have occurred to date, our analysis suggests that modest and somewhat sustained withdrawals of financial assets from smaller U.S. banks have occurred after a cyber attack," the IMF writes. Another example cited by the organization is an attack on the central bank of the South African country of Lesotho last December. It severely disrupted the national payments system, making transactions by domestic banks impossible.
Strengthening the digital resilience of the financial sector is thus of great importance. To achieve this, adequate national cybersecurity strategies and appropriate regulatory and supervisory frameworks must be developed. Companies and government organizations must also commit to training security personnel and information sharing at both national and international levels.
Furthermore, the IMF writes that response and recovery protocols are necessary to limit the impact of cyber attacks on financial stability. Reporting of cyber incidents should also be revamped. Furthermore, regulators should hold board members accountable for a company or organization's cybersecurity. Indeed, they should ensure that employees are aware of digital threats, for example, by providing training on cyber hygiene. Good password and update policies are also essential.
The IMF recognizes that the financial sector faces a major challenge. It therefore advocates international cooperation between government agencies and financial organizations. "Because attacks often occur from outside a financial firm's home country and the proceeds can be transported across borders, international cooperation is imperative to successfully address cyber risks," the researchers write.
