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
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
Global Agencies Focus on ESG Data, Climate Litigation and Nature Risks
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.
ISSB Standards Shine Spotlight on Comparability of ESG Disclosures
The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures
EBA Issues Several Regulatory and Reporting Updates for Banks
The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.
BCBS Proposes to Revise Core Principles for Banking Supervision
The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.
US Proposes Final Basel Rules, Transition Period to Start in July 2025
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.
FSB Report Outlines Next Steps for Climate Risk Roadmap
The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.
EBA Plans on Ad-hoc ESG Data Collection and Climate Scenario Exercise
The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.
