Securing the Future: Cyber Risk Management for Financial Institutions

May 31, 2024

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Cybersecurity is essential if financial institutions want to maintain their customers’ trust. While issues at large, multinational banks and investment firms often grab the headlines, small and medium-sized financial organizations are just as vulnerable, if not more so. 

With AI technology increasing the sophistication of cyber-attacks and fraud cases on the rise, cyber risk management can help organizations identify and mitigate the biggest threats, keeping their assets—and those of their customers—safe and secure. 

An Overview of the Financial Cyber Risk Management Landscape

As the digital landscape grows more complex, so do the cybersecurity risks that financial institutions face. Cyber risk management helps organizations identify threats and their likely sources, enabling them to develop targeted security measures and incident response plans. 

In the finance world, these risks usually come from three angles: customer-targeted attacks, internal risks, and third-party threats, which often originate in the supply chain. 

Let’s explore each one using a hypothetical example: a small regional bank with a strong relationship with its customers and local community but fewer resources than a national competitor. After we lay out our example, we’ll take a look at the best practices we would recommend to prevent the issues.

Maintaining trust is paramount to the success of an organization grounded in the local community. So, what happens when a phishing campaign begins to target a regional bank’s customers? With login credentials exposed, customer accounts are at risk, placing people’s livelihoods at risk and damaging their trust in the bank. 

If the bank had security measures—such as multi-factor authentication, customer education campaigns around security, threat monitoring, and an incident response plan—the impact could be mitigated if not avoided altogether. But without this security, affected customers might move their business somewhere else where they feel more protected.

But let’s say the bank has all that and has successfully mitigated its customers’ risk of fraud. They still have two other angles to worry about. Because the bank is so customer-minded, it has gone to great lengths to ensure the security of its customer-facing website and app. However, they weren’t so careful about the back end, assuming that the developer(s) had taken care of that. 

If the internal technology infrastructure and security protocols are substandard, the bank may still be vulnerable to attacks. When cybercriminals use malware to target those internal vulnerabilities, customer data is at risk. They might have avoided this issue if they had established rigorous internal security protocols aligned with cybersecurity frameworks.

To make matters worse, the bank didn’t do its due diligence when selecting third-party technology vendors. When one vendor suffers a security breach, the bank’s data is exposed to the attackers—potentially even triggering the customer phishing and malware attacks in the first place.

Each of these risks might have been avoided if the bank had prioritized internal and external cybersecurity. But in the absence of established security processes, the bank now has to shore up its security and win back the trust of its customer base. 

Cybersecurity Best Practices for Financial Institutions

In the previous section, our fictional regional bank suffered three different types of attack that put customer assets at risk. Let’s explore essential best practices financial institutions can follow to identify and mitigate cybersecurity risks like the ones illustrated above.

Establish a Security Baseline through Risk Assessment

The first step in strengthening your financial institution’s cybersecurity is conducting a thorough risk assessment. This allows you to establish a clear understanding of what you need to secure, where those threats come from, and how those fit in the context in which you operate–e.g., your industry or community.

To conduct a risk assessment, analyze: 

  • Your critical assets, including databases, key systems, and more. Identify which assets would have the biggest impact if compromised.
  • Your biggest security weaknesses—for example, the bank’s lack of customer education, poor internal controls and vendor selection processes.
  • Which threats are most likely to occur based on the environment your business operates in and existing security vulnerabilities.

Then, using this information, prioritize your cybersecurity efforts where they are most needed. For example, establishing strong internal controls and implementing customer security features like multi-factor authentication.

While it’s a good first step, a risk assessment should not be a one-time exercise. Instead, you should conduct risk assessments at regular intervals (e.g., annually) and whenever new technologies or threats are introduced. This way, you can update your cybersecurity measures and response plans and maintain their effectiveness in new circumstances.

Align with Cybersecurity Frameworks

While a risk assessment helps you understand what to guard against, a cybersecurity program helps you achieve it. 

To create an effective cybersecurity program, leaders should ensure their organization’s approach is aligned with relevant cybersecurity frameworks, such as: 

  • NIST Cybersecurity Framework (NIST CSF): A comprehensive, risk-based framework that provides a common language and approach for organizations to manage and improve their cybersecurity.
  • FFIEC Cybersecurity Assessment Tool: A framework developed by the Federal Financial Institutions Examination Council (FFIEC) to help financial institutions identify their risks and determine their cybersecurity maturity.
  • ISO 27001: An international standard that specifies the requirements for establishing, implementing, maintaining, and continually improving an information security management system (ISMS) within an organization.

These frameworks offer a comprehensive set of controls and guidelines that can help you identify and fill security gaps and stay compliant with regulatory requirements.

One effective way to establish a solid security program is through an objective assessment from an experienced partner like Smith + Howard

For example, through an Application Security Review, a Smith + Howard advisor could thoroughly evaluate all customer-facing applications for security vulnerabilities and recommend framework-aligned improvement. 

In summary, by aligning with widely recognized frameworks, leaders can ensure that their cybersecurity program is comprehensive and meets or exceeds industry standards, which helps your clients feel safer.

Strengthen Third-Party Risk Management

Most organizations don’t create or manage every product or service in-house. For a regional bank or credit union, third-party vendors might include mortgage lending partnerships, credit card providers, software or app development vendors and various other IT solutions.

Because these are administered by external partners, they aren’t necessarily covered by your internal controls or cybersecurity measures. Instead, you need to rely on their cybersecurity—meaning that each third-party vendor could be a source of risk.

Choose vendors with industry-recognized cybersecurity compliance indicators like SOC 2 to mitigate this risk. These independent attestations provide assurance that the vendor handles sensitive data responsibly and is committed to secure practices.  

To elevate security further, ensure that your contracts with third-party vendors include security requirements and incident response protocols.

This due diligence can help you safeguard your financial organization’s assets and those of its customers, preserving your reputation for security and trustworthiness.

Build Cyber Resilience with an Incident Response Plan

Cybersecurity is not just about prevention. It’s also about effectively responding to and recovering from security breaches. A comprehensive incident response plan tells your team what to do whenever an incident occurs, increasing your cyber resilience. 

An incident response plan should include: 

  • Clearly established roles and responsibilities for each aspect of your incident response
  • Detailed response procedures for different scenarios
  • Up-to-date contact information for key stakeholders, including relevant government agencies like local FBI and CIA offices)

Once your incident response plan has been established, ensure its effectiveness by regularly testing and updating it. 

Cultivate proactive relationships with your government contacts, such as the ones in the FBI and CISA. You can find your local field offices on the FBI and CISA websites. They can provide valuable support and guidance in establishing effective cybersecurity measures aligned with best practices. Additionally, if you need their support when a security incident occurs, an established relationship will help you collaborate more effectively.

Start Early to Build a Strong Cybersecurity Foundation

For small and medium-sized financial institutions, the key to effective cybersecurity is prioritizing it from the beginning. It’s far easier to build from the ground up than to go back and redesign your organization’s cybersecurity foundation at a later date. 

Establishing a solid cybersecurity culture within your organization can help you avoid costly and disruptive security breaches in the future. It will also make it easier to maintain compliance with evolving regulations and industry standards and foster trust with your customers.

Smith + Howard: Cyber Risk Management Experts

As a financial institution, your cybersecurity—or the lack thereof—directly impacts the everyday livelihood of the people in your community. If security breaches occur, customers can suffer enormous consequences. They may lose their savings, struggle to pay bills and incur even more costs as they recover. 

All of this could significantly damage your organization’s reputation.

Making proactive investments in cybersecurity—for example, through cyber risk assessments, application security reviews, or SOC reporting—demonstrates your commitment to your customers’ well-being. It inspires trust and confidence and establishes your institution as responsible and trustworthy.

At Smith + Howard, our cyber risk management and compliance team can help you evaluate your financial institution’s risk, establish your security baseline, and create a rigorous, framework-aligned action plan to protect your most valuable assets. To learn more, contact an advisor today

How can we help?

If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.