Why Australia’s Reserve Bank (RBA) thinks a major cyber incident against a bank is inevitable
The Reserve Bank of Australia recently warned that a significant cyber security attack against one of the nation’s banks is all but “inevitable” given the year-on-year growth in the number of attempted hacks.
The central bank sounded the alarm in its latest financial stability review, which explained that such an event “could lead to a widespread stress in the financial system” due to a loss of public confidence.
The RBA notes that while incidents have been limited to date, the potential for systemic implications is very likely at some point.
Why the RBA thinks a cyber attack on a major bank is a matter of time
Why the alarm? The RBA posits that “given the very large number of attacks, it seems almost inevitable that at some point the defences of a significant financial institution will be breached”.
The bank cited the rise in ‘moderate’ and ‘substantial’ cyber security incidents reported to the Australian Cyber Security Centre (ACSC) between 2019-20 and 2020-21.
The ACSC noted that in the financial year 2021 (ending June 2021), cyber incidents affecting the Australia financial sectors had a greater impact versus the prior year, with the trend being a reflection of what has been happening over the previous few years.
There were several large-scale, high-profile attacks in the financial year on large, seemingly-secure corporates more generally.
How pandemic-fuelled changes have accentuated risks
The RBA noted that “changes to business operations” and remote working during the pandemic have accentuated vulnerabilities. This has compounded risks that have been growing organically for some time.
These risks to IT systems from malfunctions and attacks are key concerns for financial institutions, regulators and governments.
These risks have grown as digital platforms and service channels have become more important to economies. They are — as the RBA notes — interconnected and complex.
Financial systems more open to contagion
Financial systems are more vulnerable than other networks and interconnected systems. This boils down to the sheer scale of their interconnection and inter-reliance on each other.
Banks and other financial institutions are among the most connected institutions in our society. They have a level of reliance on the central bank and each other that is not seen in other sectors.
The report reflected on this, adding that the interconnectedness of financial systems means a cyber attack could “rapidly transit… from one institution to another”.
In turn, compromised confidential information could lead to reputational damage and liquidity and credit risks within the market.
All of this makes for sobering reading for Australia’s financial industry executives, without a shadow of a doubt.
But none of this is — in our view — a foregone conclusion. While the mathematical probability is higher than ever, the possibility of a successful attack is no foregone conclusion.
If banks and financial institutions continue to approach cyber security as an absolute necessity, the doomsday scenario countenanced above can be averted.