Cyber security fastest growing risk to financial institutions

In the past, cyber terrorists have focused primarily on the largest financial institutions (FIs) in the country. However, since criminals often follow the path of least resistance, the risk to community FIs is growing. A recent Office of the Comptroller of the Currency report found cyber security to be one of the fastest-growing threats to FIs of all sizes..Interestingly, an OCC report released just six months ago only mentioned cyber security once. Conversely, the more recent report devoted an entire section to cyber threats. Much of the increased focus on cyber security came after a number of megabanks experienced distributed denial of service attacks a few months ago..Although larger FIs wage daily battles against cyber threats, the report focuses on the potential migration of cyber threats to smaller community FIs. The agency's concern is that the increase in frequency and sophistication of cyber threats may lead to an increase in costs and resources designed to combat the problem..The report cites concerns that FIs may alter the way they apply technologies, such as adopting new and less-market tested applications, and re-engineering business processes. These cost-saving measures need to be met with an increased understanding of the associated risks, and a comprehensive plan for ongoing oversight..Also of concern is the increase in electronic bank fraud. The OCC points out that a number of FIs are failing to employ the level of resources necessary to effectively deal with the Bank Secrecy Act and anti-money laundering compliance..With regard to community FIs, the report highlights strategic risk as being of particular concern. Small to midsize FIs need to beware of getting into specific business lines that require specialized risk management. These could include leveraged loans, mortgage banking, indirect auto financing and energy lending. Smaller FIs are also cautioned about higher interest rate risk, as some FIs are buying additional mortgage-backed securities to invest their deposits, in an effort to increase the duration of their investment portfolios..Specifically for mid-size FIs, the OCC will focus its supervision and policies on seven areas. These include risk management of new or modified products and services; strategic and capital planning; underwriting of commercial and industrial loans; commercial real estate concentration; interest rate risk; compliance with consumer laws and anti-money laundering schemes; and operational and technology risks..Increased awareness and access to appropriate resources are necessary to properly mitigate the risks associated with current cyber threats. As we move forward during this time of intense cyber security risks, make sure your FI is keeping prudence and due diligence a priority..Jim Ghiglieri is senior vice president with SHAZAM.