3 Costly Consequences of Cybersecurity Negligence in Banking

Cybercrime is on the rise – is your financial institution properly protected?

If you doubt the integrity of the walls you’ve built around your institutional data, now might be the time to start building anew. Financial services institutions often make lucrative targets for cybercriminals, trading in large amounts of transactions and sensitive data – and often, their legacy systems and last-generation cybersecurity platforms make it easy for criminals to metaphorically hold them up.

Realizing this, cybercriminals have made bank over the last decade, with losses spiking as high as $2.5 billion; and that’s without considering the reputational damage, customer withdrawals, and disruption to third-party services.

Insulating your institution against risk is necessary, and will only become more so as cybercriminals become more sophisticated. In this article, we’ll briefly break down areas of vulnerability that cybercriminals can exploit to secure your data, illustrate the consequences of system failure, and show you how to fortify these pain points with security tips and tricks.

Customer Trust and Reputational Damage

Every transaction is built on trust. Customers deposit their money with you knowing that you will be able to hold on to it, and accept your ability to process charges on their behalf believing those charges are accurate.

Cybercriminals can be adept at making fraudulent charges look legitimate, “transacting” business with the bank subtly, and leaving them with the bag. If these charges aren’t recognized for what they are and aren’t suspended immediately, your institution will look incompetent to the consumer. Trust will be broken, they’ll withdraw their funds, and possibly share their experience with others; a circumstance that can result in steadily growing reputational damage, or an outright closure of your bank.

To prevent this, rely on your and the customers’ most powerful internal auditing tool: accurate financial statements. In addition to keeping you in compliance with external regulations, recording and releasing financial statements accurately and in a timely manner helps fortify consumer trust. It allows both you and them to catch any charges that look odd, and cordon off fraudulent activity before it becomes a more serious threat.

In the event of a more serious breach, keeping accurate financial reports will help your institution recover quickly when minutes matter most. With reporting as a reference, you’ll be able to quickly audit the cause and implications of the breach, communicate an action plan to stakeholders, and release a statement to the public rapidly. Consumers realize that breaches happen, which is why the response phase is so crucial – knowing that you know what happened and have a plan to prevent future occurrences is critical to winning back lost trust.

Legal Liability

Federal and state regulations also require banks to take measures to protect their clients’ investments; meaning that if a breach occurs, and if the proper measures weren’t taken to protect financial assets, banks may have more to worry about than reputational damage. Legal consequences can be steep, ranging from significant fines to outright institutional closure.

To make sure your institution is storing its assets in accordance with the law, audit any of these areas:

• Your cybersecurity awareness: Cybersecurity best practices like end-to-end encryption, device hardening protocols, and patch management are foundational; and often required by a number of regulatory agencies. Failure to consistently maintain these security measures may result in legal liability in the event of a breach.
• Your data privacy measures: Similarly, regulatory agencies dedicate a lot of time and thought to how customer data is stored. While many newer systems already have built-in support to ensure regulatory compliance, legacy technology may be less protected than regulatory doctrine would require.
• Your record keeping: As mentioned above, record keeping is useful as a self-auditing tool; however, should a breach occur and records are not stored in keeping with federal regulations, institutions could find themselves on the end of receiving steep financial consequences. Therefore, it’s essential to use an internal auditing checklist to make sure all record-keeping is up to snuff.

Many regulatory measures overlap with best practices for preventing data breaches; those of threat awareness, self-auditing, and consistent improvement. However, regulatory compliance is typically about executing these priorities in a certain way. Understanding how federal and state regulations should shape your processes will insulate you from further damage in the event of an attack.

Operational Collapses

While we’ve previously discussed how data breaches affect the health of individual institutions, we need to zoom out for a moment and consider the wider impact. Cybersecurity breaches can negatively impact business with third-party financial service providers, with effects ranging from a temporary interruption in service to a permanent cessation of partnership. Additionally, news of a breach can cause contagion regarding adjacent banks as well, as panic over the loss of stored assets can inspire consumers to rash action.

Proper cybersecurity measures are necessary for not only your institutional health, but that of others as well. Failure to protect your assets in compliance with federal and state regulations can be an inciting incident, especially with financial uncertainty running rampant in our current economy. Choose caution, and reap the benefits of steady, stable business.

By Indiana Lee, BOSS contributor