Cyber attacks on financial institutions from 'hacktivists', nation states or paid hackers are the top systemic threat facing financial markets, says a report from the Depository Trust & Clearing Corporation (DTCC).
The report claims distributed denial of service (DDoS) attacks, which can disrupt markets by preventing clearance, settlement and other core functions, have dramatically increased in the last 12 months.
The problem is increasingly widespread, according to research carried out partly by the World Federation of Exchanges and released in July. More than half of 46 exchanges reported experiencing a cyber attack in the past year.
“DTCC expects cyber attacks to escalate and become more sophisticated in the future,” says DTCC report. “Attackers benefit from their anonymity and lack of attribution as well as their existence outside US and EU jurisdictional boundaries, all of which minimize the probability of prosecution.”
Besides DDoS attacks, financial institutions face the threat of infiltration by malware sent by email attachments or compromised websites set up by hackers, who may use social networking tools to identify and attack the machines of target individuals within financial companies.
The report says protection against cyber attacks can be enhanced through closer information sharing, increased real-time exchange of intelligence and stronger prosecution across international boundaries.
The DTCC, which provides clearing and settlement for the US market, is considering how it could use its private network to communicate in the case of network disruption, or enable small and medium participants to access the private network.
Other potential systemic risks include high-frequency trading, the impact of new regulation, counterparty risk, possible collateral shortages and breaches in governance and compliance controls like the Libor scandal.
“Certain events such as 9/11 simply cannot be foreseen,” says the report. “However, others can be anticipated and monitored as they evolve.”
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