Unto the breach
Banks that have been pooling resources on blockchain technology should apply their camaraderie in a different field: cyber security. The hacking of an unnamed commercial lender, revealed by financial messaging system SWIFT on May 12, followed an $81 million cyber heist from Bangladesh’s central bank in February. An industry utility – or at least better coordinated defences – is needed.
Increased regulatory requirements and rock bottom interest rates, both a legacy of last decade’s financial crisis, have made it hard for banks to make an economic return. Distributed ledger technology that underpins bitcoin may help cut sector costs. That’s why over 40 banks have joined blockchain development group R3.
Cyber security should be next on the list. It’s likely to be banks’ biggest cost in terms of financial crime prevention this year and next, according to LexisNexis Risk Solutions. Weak cyber defences might prompt a credit rating downgrade, says Standard & Poor’s.
Lenders may feel worried about sharing sensitive data with rivals. But the aviation industry, long teetering on the edge of profitability, improved efficiency by sharing accident information via black box technology. And greater teamwork would help keep tabs on would-be criminals. Companies’ own employees represent a huge threat: business investigations firm Kroll said in its latest annual global fraud report that insiders accounted for 81 percent of perpetrators. A shared database of suspects might be a safeguard.
Regulators and governments could play a bigger role, too. The European Central Bank’s plan for a database of serious incidents, as reported by the Financial Times on May 12, looks no more than a first step. The U.S. Financial Services Information Sharing and Analysis Center has had limited success – only 5 percent of the cyber threats American Express finds are the subject of warnings from other institutions, the company’s Chief Executive Kenneth Chenault said last year.
But lenders right now seem to be doing too little. Europe’s private sector-led Cyber Defence Alliance consists of just four banks. Financial institutions have demonstrated an unusual level of esprit de corps when it comes to new technology. Given cyber security could hit their finances more painfully, cooperation makes even more sense.