Regulators have failed to address the growing threat of a massive, coordinated attack on vital financial networks, according to a risk-management expert.
"The potential for a massive and well-coordinated cyberattack on critical global financial networks is real and growing daily," writes Clifford Rossi, executive-in-residence and Tyser Teaching Fellow at the University of Maryland, in an article for American Banker.
News reports have highlighted isolated cyberattacks on banks and other institutions. The Financial Stability Oversight Council (FSOC) seems unmoved by those headlines.
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Instead of planning for massive cyberattcks, the regulator remains locked on sins of the past crisis, writes Rossi. Little has been done, despite mounting evidence that hostile governments are strengthening their cyber capabilities.
The wake-up call is finally awakening some regulators to the financial markets' vulnerability.
"However," Rossi states, "these agencies face a daunting task in shifting resources and priorities away from building data and analytic capabilities to understand financial threats to markets and institutions where limited focus existed before the crisis."
The Department of Homeland Security is warning that infrastructure such as the power grid, communications and financial networks are "soft" targets vulnerable to cyberattacks.
It's not clear, Rossi says, how much national security agencies share information with financial regulators, specifically the FSOC and the Office of Financial Research (OFR).
Acting DHS Assistant Secretary Roberta Stempfley told Congress how important it is for the Departments of Justice, Homeland Security and Defense to share information. "The omission of FSOC and OFR from this list," Rossi says, "seems somewhat surprising, given the mandate of these groups to surface impending threats to financial stability."
The OFR touched on cyber threats in its 2012 annual report but said that area is not currently a priority. The agency is focusing on shadow banking, interconnectedness among counterparties, derivatives and other financial products.
The office is mostly staffed by financial data, technology and market experts. "As a result, a potential blind spot exists in the OFR's ability to identify and report trends and emerging threats on the cyber security front," Rossi writes.
Regulators have formed a working group, the Cybersecurity and Critical Working Group, to increase coordination among federal and state banking agencies, the Federal Financial Institutions Examination Council announced recently.
"These efforts are important in light of the growing sophistication and volume of cyber attacks and the global importance of critical financial infrastructure," the council stated in its press release.
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