The Financial Stability Institute (FSI) of BIS published a paper that examines the contribution of red team testing frameworks toward enhancing cyber resilience. The paper describes key components of a red team testing framework, compares the existing frameworks, outlines the benefits and challenges of these frameworks, and highlights the potential cross-border issues in the area of red team testing. In terms of policy implementation, the paper emphasizes that, to take red team testing to the next level, consideration could be given to addressing the legal, operational, and regulatory challenges in coordinating cross-border red team testing for internationally active financial institutions.
The paper is based on information provided by eight financial authorities and selected private-sector players. Most of the surveyed jurisdictions have red team testing frameworks in place, although the objectives and implementation details may differ. The paper covers the red team testing frameworks for financial institutions in EU (including the Netherlands), Hong Kong SAR, Saudi Arabia, Singapore, and the UK. The paper highlights that the international standards on cyber resilience of financial institutions have raised the bar in terms of defining the expectations on firms. Central to this is the use of red team testing as one of the tests that firms can undertake to assess resilience against realistic cyber attacks and strengthen their cyber resilience.
Nevertheless, there are challenges to be overcome and certain facilitating conditions appear to be instrumental in supporting effective implementation of red team testing. Such conditions include a conducive governance structure, an engaged board of directors, a supportive risk culture and, critically, the availability of sound professional skills. In certain jurisdictions, an accreditation framework has been established to boost local capacities. One culture-related hurdle to overcome is getting firms and authorities to view a red team test as a “learn and improve” rather than a “pass or fail” exercise. Other challenges in connection with red team testing include the high cost to firms, trust among the involved parties, and data confidentiality.
Extending red team testing beyond jurisdictional borders is important to minimize potential cyber resilience blind spots, given that cyber attackers could attack any part of the attack surface of a financial institution. In addition, cross-border technological dependencies could give rise to systemic implications if cyber attackers succeed in exploiting vulnerabilities that could trigger such chain events. The paper recommends the following policy actions going forward:
- Financial sector authorities may wish to clarify how red team tests fit within their strategies to improve the cyber resilience of financial institutions. This will help provide regulatory certainty to firms and prompt concrete actions to improve their cyber resilience postures.
- Consideration should also be given to clarifying how red team tests fit within an institution’s cyber resilience framework, which in turn should be coherently considered in its enterprise-wide risk management framework.
- Authorities should continue to assess the effectiveness of their frameworks and use the lessons learned from each test to improve the overall cyber resilience of the financial sector.
- Authorities may need to enhance cooperation with other relevant authorities and parties to enable effective implementation of the frameworks.
Keywords: International, Banking, Insurance, Securities, PMI, Cyber Resilience, Red Teaming Framework, Cyber Risk, Research, CBEST, TIBER-EU, FSI, BIS
Previous ArticleGLEIF Publishes LEI Data Quality Report and GLEIS Business Report
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.