BIS and Central Banks to Address Cyber Threats from Quantum Computing
Once quantum computing reaches its full potential, the standard encryption methods in use today are expected to become obsolete. After achieving sufficient size and power, quantum computers will be able to easily break the cryptographic encryption schemes being used to ensure secure financial transactions and data. According to a recent publication from the Bank for International Settlements (BIS), this is one of the most significant cybersecurity threats facing the financial system, potentially exposing all transactions and much of the existing stored financial data to attack. Further to this, a joint study by Moody’s and Corinium Intelligence reveals that 86% of organizations are not ready for post-quantum cybersecurity while 84% foresee the need for it in the next two to five years. These developments highlight the need for post-quantum cryptography or cryptographic algorithms that are resistant to quantum computing attacks. Post-quantum cryptography is also becoming an area of focus for certain regulators and banking authorities, with recent experiments under Project Leap being one such example.
Project Leap overview
In June, the BIS Innovation Hub Eurosystem Center and the central banks of France and Germany announced the successful completion of their experiment under Project Leap. To prepare central banks and the global financial system for a transition toward quantum-resistant encryption, the Project Leap is investigating how to update and replace the cryptographic security algorithms that the financial system critically relies on. In this context, BIS has published a Project Leap report that presents a comprehensive overview of the experiments conducted and the initial technical findings that can help guide the global transition toward new cryptographic protocols. This project involved transmitting test payment messages via this quantum-resistant Virtual Private Network (VPN) tunnel between servers located in Paris and Frankfurt, thereby demonstrating how critical financial data can be protected. The success of this experiment paves the way for the BIS Innovation Hub Eurosystem Center and its partners to build a complete chain of trust for central bank applications in the post-quantum world, acting as a blueprint for the financial system.
Success and next steps
Project Leap has demonstrated that applying post-quantum protocols is already feasible. Hence, it is already possible to start the migration process. Central banks need to allow for a transition phase in their cybersecurity roadmaps so that they are prepared once the final standards are published. Project Leap addresses some of the specific challenges of implementing quantum-resistant information technology (IT) environments for the financial system, with a view to preparing for this transition and accelerating it. Project Leap showed that, for a VPN, there is no significant impact on performance. Nevertheless, for applications where performance is critical, such as instant payment applications or central bank digital currency (CBDC) systems, a trade-off between security and performance will be necessary. Future work could include testing post-quantum cryptography in a more complex environment, addressing more central banking use cases to secure communications between central banks and other institutions.
By providing insights and technical findings, the report on Project Leap paves the way for future cooperation among central banks on post-quantum cryptographic protocols. Additional central bank use cases will be explored in a subsequent phase of the project, with the overall aim of contributing to quantum-proofing the financial system. Hence, the second phase will onboard more than two central banks to investigate more complex IT environments in preparation for real-world contexts. A new report will be published giving direction on the specificities of central bank systems in order to facilitate migration plans to quantum-safe environments.
Click here to find out more about Moody’s expertise in quantum computing and let's make the Quantum Leap together. At Moody’s Analytics, we are focused on innovation to better serve our customers and enable them to make decisions even faster than before. We are excited to announce a quantum leap forward with our exploration of quantum computing, which promises extensive improvements for computationally expensive problems that could impact on some of the core problems our clients face.
Related Links
Keywords: International, Europe, Banking, Suptech, Regtech, Cyber Risk, Quantum Computing, Bundesbank, BdF, Innovation Hub, BIS
Previous Article
BIS Paper Finds User Control Over Personal Data to be BeneficialRelated Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
