By Hamish Karamsadkar, digital trust and cyber security expert at PA Consulting Group
People around the world were shocked as the WannaCry and “#NotPetya” ransomware viruses exposed and exploited IT weaknesses in leading companies around the world, including the Bank of China, FedEx, DLA Piper and the UK’s National Health Service. But with cybercrime in financial services (FS) reaching staggering levels and the costs to the global economy reportedly averaging £266 billion a year for the last three years, should we really be that surprised? While everyone looks inwardly in the event of a breach, we have to learn that to deal with the combination of the increasingly sophisticated attackers and the relentless advance of technology we need to share more readily.
Emerging technologies bring new risks
An ever-more connected customer base means more focus on digitising products, services, and transactions. So FS firms are increasingly dependent on the internet and emerging technologies which increase risk in a digitally perimeter-less environment.
With each new technology on the radar, a complementary vulnerability exists. For example:
- Botnet attacks: The dark side of the ‘Internet-of-Things’, this relates to digital devices that are connected to the internet and that have been breached to commit fraud or attack network servers (in 2015, two ethical researchers were able to wirelessly take control of a Jeep Grand Cherokee, resulting in a recall of 1.4 million vehicles!). For financial institutions, botnet attacks have contributed to the loss of £millions and are considered the most prevalent attack method for financial businesses globally.
- Cloud computing and data storage: As the world’s data moves to the cloud we expect to see increasingly sophisticated attacks on cloud infrastructures, shifting from device to cloud-based botnets, exploiting vulnerabilities in cloud servers. A 2015 Cloud Security report found ‘brute force’ attacks on cloud environments climbed from 30% to 44% of customers, and vulnerability scans increased from 27% to 44% in that year. Brute force attacks typically involve a large number of attempts testing multiple common credential failings to find a way in, while vulnerability scans are automated attempts to find a security weakness in applications, services or protocol implementations that can be exploited. These types of incidents have been far more likely to target on-premises environments in the past, but are now occurring at near-equivalent rates in both environments.
- Payments technology: As companies and consumers adopt new mobile payments technologies, such as Apple Pay and Google Wallet, cyber criminals are intensifying their efforts. In 2015, Google Wallet user credentials were stolen after the service fell prey to an Android ‘Fake ID‘ exploit – related fraud cases in the US have since been running into the $millions. Inevitably, FS institutions will need to quickly understand the threats that new mobile payments technologies pose to established business models.
Over and above new threats on the horizon, the FS industry has existing concerns which make cyber-security doubly challenging, including extensive compliance regulations, the struggle to secure customer data, and supplier risk.
So how should firms respond?
Too many institutions rely on general IT-risk management processes in the hope they’ll be enough in the event of a major cyber-attack. But FS firms need to protect themselves by analysing data and looking for trends to pre-empt potential attackers.
A US- study highlighted that a mass spear-phishing email campaign in 2013 demonstrated that many institutions lacked the right vision and strategy to defend against evolving and persistent threats. Criminals stole almost $1billion from 100 banks in 30 countries. The malware used wasn’t detected by affected businesses for almost 300 days after the attack. In short, long-term protection which should focus on improving incidence response or enhancing cultural security behaviours is sacrificed in favour of real-time threat detection.
Firms need to remember that technology alone cannot secure your department from a crippling cyber-attack. User education needs to be integrated with robust technology into a business-wide programme for cyber security.
Assume anything is possible
The best way businesses can improve their cyber resilience is to embrace a risk-based approach to managing cyber security.A risk-based approach starts with the assumption that an unauthorised user already has the capability to gain access to a system. With this in mind, a risk-based approach undertakes a process of threat modeling where security experts look at the entire IT environment and documents threats (existing or emerging) and their potential impact on a businesses’ security posture. Ultimately, a risk-based approach needs to form part of an overall risk management strategy and should involve:
- breaking down silos between technical IT areas and the wider business
- focusing on educating staff (regardless of seniority or accountability) about cyber security in a way that demystifies complex topics
- identifying where the business is most vulnerable to attack and where most critical information and system capabilities are, and
- assessing how effective incident response processes are, identifying and remediating any gaps.
Given the sophistication, complexity, and evolution of the techniques and technologies used by attackers, even a sizeable organisation with ample information security resources may find it difficult to plan and implement an adequate response by itself.
As cyber threats evolve, FS institutions will need to share knowledge, particularly as compliance and regulation becomes increasingly normalised. Internally, organisations can significantly strengthen their ability to protect their business as well as their customers by sharing and pooling data on attack methods, loss prevention, and information security.
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg
LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.
Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.
Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.
Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.
“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.
“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.
Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.
Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.
Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.
Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.
Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”
“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.
By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”
Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.
“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.
($1 = 0.7146 pounds)
(Reporting by David Milliken; Editing by William Schomberg)
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
Oil extends losses as Texas prepares to ramp up output
By Devika Krishna Kumar
NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.
Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.
This week, both benchmarks had climbed to the highest in more than a year.
“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.
Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.
Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.
“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.
Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]
The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.
“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.
(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)
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