Financial Crime World

Global Financial System Under Threat: Urgent Need for Collective Action

The global financial system is facing an unprecedented threat from cyber attacks, according to a report by the Carnegie Endowment for International Peace. The rapid evolution of the risk landscape is putting pressure on the responsiveness of the mature and well-regulated system, and without dedicated action, the system will only become more vulnerable.

Fragmentation Among Stakeholders

The report highlights fragmentation among stakeholders and initiatives as a major obstacle in addressing the issue. Different communities operate in silos, tackling the problem through their respective mandates:

  • Financial supervisory community focuses on resilience
  • Diplomats focus on norms of state behavior
  • National security agencies focus on trying to deter malicious activity
  • Industry executives focus on firm-specific rather than sector-specific risks

Disconnect between Communities

The disconnect between the finance, national security, and diplomatic communities is particularly pronounced. Financial authorities face unique risks from cyber threats, yet their relationships with national security agencies remain tenuous. This responsibility gap and continued uncertainty about roles and mandates to protect the global financial system fuel risks.

Recommendations for Collective Action

To address this challenge, the report recommends an international strategy based on four principles:

  • Clarity about roles and responsibilities: Clearly define roles and responsibilities among stakeholders
  • Strengthened international norms: Establish strengthened international norms for cybersecurity
  • Collective response through law enforcement actions or multilateral reaction with industry: Implement collective responses through law enforcement actions or multilateral reactions with industry
  • Building capacity in cybersecurity workforce and financial sector’s cybersecurity capacity: Build the cybersecurity workforce and expand the financial sector’s cybersecurity capacity

Building Cybersecurity Capacity

The report also emphasizes the need to:

  • Build the cybersecurity workforce
  • Expand the financial sector’s cybersecurity capacity
  • Safeguard gains in financial inclusion that have resulted from the digital transformation
  • Create an international mechanism to build cybersecurity capacity for the financial sector, with an international agency designated to coordinate the effort

Time for Collective Action

The time has come for the international community - including governments, central banks, supervisors, industry, and other relevant stakeholders - to come together to address this urgent and important challenge. A well-thought-out strategy provides a blueprint for turning words into action.

Author: Tim Maurer, Director of the Cyber Policy Initiative and Senior Fellow in the Carnegie Institute of International Peace’s Technology and International Affairs Program.

References:

  • Garcia-Macia, Daniel, and Rishi Goyal. 2020. “Technological and Economic Decoupling in the Cyber Era.” IMF Working Paper 20/257.
  • International Monetary Fund (IMF). 2019. “The Rise of Corporate Market Power and Its Macroeconomic Effects.” World Economic Outlook, Chapter 2. Washington, DC, April.
  • Medhora, Rohinton P. 2021. “We Need a New Era of International Data Diplomacy.” Financial Times, January 17.

Note: Opinions expressed in articles and other materials are those of the authors; they do not necessarily represent the views of the IMF and its Executive Board, or IMF policy.