The financial industry is not a new target for incentivized attacks by cybercriminals. In fact, financial services companies reported 703 cyber attack attempts per week in Q4 2021, a 53% increase over the same period in the previous year, per Banking Journal. The financial implications of such security violations are continuing to rise. IBM and the Ponemon Institute report that the typical cost of a data breach in the financial sector was $5.72 million in 2021. Businesses in the banking sector have spent record amounts on digital security measures over the last decade.
Financial losses are not the only concern for businesses in the financial industry; data breaches diminish the trust of users and can tarnish a company’s reputation. Understanding the challenges that increase cyber risks in the financial industry is crucial for sustained resiliency against data breaches.
The Most Common Causes of Financial Data Breaches
Companies in the financial industry are frequent targets of cyber attacks, and the impact of just one cyber attack can follow a company for years. No business is immune to these attacks, regardless of size or operational protocols. That said, businesses should continually educate themselves on evolving threats and identify potential security gaps.
The causes of data breaches among financial institutions can vary but may include:
Malicious Cyber Attacks
Cyber attacks are becoming more common as technology continues to advance at a rapid rate. Today, hackers use a wide variety of tools to gain access to sensitive business information, often for financial gain. Malicious cyber attacks have many causes, such as weak or stolen credentials, application vulnerabilities, malware, social engineering and complex access permissions.
Ransomware was a significant cyber threat to global organizations in 2021, and the banking sector was disproportionately affected. A Trend Micro report showed that in the first half of 2021, businesses in the financial industry experienced a 1,318% year-on-year increase in ransomware attacks. Furthermore, an Advanced Threat Research Report by Trellix revealed that the banking/financial sector accounted for 22% of ransomware attacks in Q3 2021.
Employee negligence is another leading cause of data breaches. Lost devices or documents, poor password choices and similar mistakes create vulnerabilities that allow hackers to gain access to valuable data. Employee awareness of cyber threats is imperative in safeguarding your organization. Because digital threats are constantly evolving, prioritizing ongoing training and education on cyber risk and security for financial institutions is a must.
Distributed Denial-of-Service Attacks
Distributed Denial-of-Service (DDoS) Attacks overwhelm a server with fake connection requests, forcing it to go offline. These types of attacks are popular cyber threats against financial sectors due to their diverse attack surface involving customer accounts, payment portals, banking IT infrastructures, and more. This deepens the impact of DDoS attacks on banking sectors as cybercriminals are able to leverage the resulting chaos by either launching additional cyberattack campaigns or threatening ransom.
The Impact of Data Breaches on Financial Institutions
The after-effects of a data breach can be significant, especially in the financial industry. Below are some of the damages that data breaches can cause during and long after the incident.
Heavy Compensation Costs
Businesses that suffer a data breach must deal with the hefty costs of containing the breach and identifying what information has been stolen and who has been affected by the breach. Depending on the circumstances, the business may be obligated to compensate affected customers. Companies may also see decreased share value and increased security costs.
Damage to Public or Private Shares
When a data breach occurs, companies often scramble to notify customers, overhaul their security systems, and limit damage to their bottom line and consumer trust. The effects of a data breach often extend to the company’s public or private shares. Companies that suffer from data breaches commonly experience a drop in share prices in the days, weeks, and sometimes even months following a security incident.
Damage to Reputation
When a business experiences a data breach, news of the breach often reaches the media and consumers quickly. The reputational damage caused by cyberattacks can be devastating for businesses in the financial industry. Negative press, lost confidence, associated identity theft and altered customer views towards the business can lead to long-term complications that follow the company for many years.
Potential Civil or Criminal Lawsuits
Data breaches that involve stolen personal information may result in legal ramifications, including class-action lawsuits. Settlements and the adjoining legal fees can lead to tens of millions of dollars in payouts that can ruin a business. Depending on the circumstances of the case, authorities may also restrict businesses from conducting certain operations until a full legal investigation is completed. If criminal negligence is discovered, a company may face astronomical fees and possible jail time.
How Can I Ensure My Financial Institution Is Protected?
Protecting a financial institution against data breaches and other types of cybersecurity incidents requires a strong infrastructure and the expertise of a dedicated team focused on cybersecurity risk management and cyber threat mitigation. Implementing proper training, establishing a restrictive permission policy and focusing on digital transformation can also help minimize digital threats.
Develop an IT Strategy to Defend Against Financial Data Breaches
For maximum protection against data breaches, an outside cybersecurity expert can bring value to your organization by implementing best practices and working alongside executives to improve security strategies. Contact Hartman Executive Advisors to learn more about how to protect your company against a cybersecurity breach.