Featured Product

    IMF Paper Examines Approaches for Surveillance of Cyber Risk

    February 10, 2020

    IMF published a paper that offers a range of analytical approaches for the surveillance of cyber risk in the financial sector. The paper describes analytical approaches, including tools and data sources, for monitoring and analyzing cyber risk, including various approaches to stress testing. These approaches are key indicators that can be collected and tracked through time, event studies, value-at-risk, custom surveys, structured presentation via a cyber risk assessment matrix, and financial-cyber network maps. The paper illustrates these analytical approaches by applying them to Singapore, with the appendix to the paper providing example templates for data collection. The paper argues that, even in the absence of cyber-event data, the models estimated in other contexts can be applied regularly in a given jurisdiction.

    Cyber risk is an emerging source of systemic risk in the financial sector and possibly a macro-critical risk too. It is poses a growing threat to financial stability; therefore, public agencies will need to do more to better understand and assess its financial stability implications. As an advanced economy with a complex financial system and rapid adoption of fintech, Singapore serves as a good case study. The quantitative results of the Singapore analyses and descriptions of the public and private-sector cyber-security initiatives in Singapore, should provide a reference for surveillance work. These approaches can serve as a checklist for those with responsibility for surveillance of cyber resilience and for other jurisdictions seeking to improve their institutional arrangements. The paper concludes by presenting directions for future work.

    The value-at-risk of 4.7% of the gross revenues consumes a significant amount of the capital budget for operational risk. BCBS recommended capital requirements for operational risk of about 11% of gross income for banks with gross income up to EUR 1 billion, which is intended to cover unexpected loss from many sources besides cyber risk and possibly at a higher level of confidence than 95%. This suggests that for these banks, even just the 95th percentile of cyber risk consumes about two-fifth of the capital budget for operational risk over one year. However, many questions still remain. For example, further work needs to estimate the size of systemic risk from cyber-attacks to the financial sector. The paper also states that MAS conducts stress tests and industry-wide exercises for financial institutions to assess their resilience to cyber threats from two complementary perspectives. While the focus of stress tests is on the adequacy of capital and liquidity buffers to weather the impact of cyber-attacks, industry-wide exercises test their business continuity and crisis management plans to respond and recover from cyber-attacks. 

    The assessment in the paper finds that limited data availability is a key challenge in assessing and monitoring cyber risk. Except where regulations require it, financial institutions are reluctant to disclose cyber-security incidents, given the potential regulatory or legal sanctions. Data may also become obsolete quickly, given the rapid pace of change in the information technology sector. Despite these challenges, the paper finds that some data and methods are readily available to analyze cyber risk. Key indicators can be collected and tracked, event studies can be conducted, survey estimates can be requested, statistical models estimated in other contexts can be applied in data-poor environments, and quantitative results can be presented in a standardized format. This quantitative work complements more qualitative ongoing work on cyber risk surveillance approaches and policy frameworks for the financial sector.

    Additionally, the paper points out that the financial-cyber network map is a recent idea that has yet to be applied in practice. When such data become available, specialized contagion risk models may need to be developed to analyze such data. For example, contagion could be modeled over a two-layer network, where one layer represents the financial links and the other layer represents the information and communications technology links. Similarly, concentration analysis for outsourcing arrangements has been described. In applications, such analysis needs to distinguish between concentration risk and the desirable concentration that arises when many financial institutions use the same reputable third-party providers.

     

    Related Links

    Keywords: Asia Pacific, Singapore, Banking, Insurance, Securities, Cyber Risk, Systemic Risk, Operational Risk, Data, Stress Testing, Concentration Risk, Outsourcing Risk, IMF

    Featured Experts
    Related Articles
    News

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    EBA Benchmarks National Insolvency Frameworks Across EU

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Reports Assess Impact of Pandemic on Financial Stability

    FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.

    November 17, 2020 WebPage Regulatory News
    News

    RBNZ Consults on Implementation of Capital Review Changes

    RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.

    November 17, 2020 WebPage Regulatory News
    News

    IASB Announces Andreas Barckow as the New Chair from July 2021

    The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.

    November 17, 2020 WebPage Regulatory News
    News

    HKMA Consults on Capital Rules for Bank Equity Investments in Funds

    HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.

    November 17, 2020 WebPage Regulatory News
    News

    ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA

    ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).

    November 17, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6153