Over the last decade, the financial industry has spent record amounts on digital security measures. Cyberattacks on businesses in the banking sector are the most costly of all, resulting in an average of $18.3 million in losses annually per company, according to data published by Accenture. 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.
The Most Common Causes of Data Breaches for Financial Institutions
Companies in the financial industry are frequent targets of cyberattacks, 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. A Financial Cybersecurity Report by SecurityScorecard revealed that 75 percent of the leading banks in the United States are infected with malware, and approximately one in five financial institutions uses email service providers with “severe security vulnerabilities.”
The causes of data breaches among financial institutions can vary, but may include:
Cyberattacks 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 cyberattacks have many causes, such as weak or stolen credentials, application vulnerabilities, malware, social engineering and complex access permissions.
Employee negligence is another leading cause of data breaches. According to an industry report by Shred-It, 47 percent of business leaders revealed that human error had caused a data breach within their organization. Lost devices or documents, poor password choices and similar mistakes create vulnerabilities that allow hackers to gain access to valuable data.
Glitches in Systems
In some cases, a data breach is no one person’s fault but rather caused by a glitch in a system. When a business experiences a break in the function or continuity of a system, hackers take advantage of security gaps and steal private information. In a Verizon Data Breach Investigations Report, it was found that approximately 25 percent of data breaches are caused by system glitches. Glitches may include application failures, unintentional data dumps or logic errors during data transfer.
What Damages Do Data Breaches Cause for 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 risk management and mitigation. Businesses should continually educate themselves on evolving threats and identify potential security gaps. Implementing proper training and establishing a restrictive permission policy can also help minimize digital threats.
Speak With A Cybersecurity Consulting Firm Today
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. Reach out to the cybersecurity consultants at Hartman Executive Advisors today to learn more about how data breaches impact the financial industry and how to protect against these risks.