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Cybersecurity in Banking: Importance, Threats, Challenges

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As we transition to a digital economy, cybersecurity in banking is becoming a serious concern. Utilizing methods and procedures created to safeguard the data is essential for a successful digital revolution. The effectiveness of cybersecurity in banks influences the safety of our Personally Identifiable Information (PII), whether it be an unintentional breach or a well-planned cyberattack.

The stakes are high in the banking and financial industry since substantial financial sums are at risk and the potential for significant economic upheaval if banks and other financial systems are compromised. With an exponential increase in financial cybersecurity, there is high demand for the profession of cybersecurity. Take a look at the best Security certifications .

What is Cybersecurity in Banking?

The arrangement of technologies, protocols, and methods referred to as "cybersecurity" is meant to guard against attacks, damage, malware, viruses, hacking, data theft, and unauthorized access to networks, devices, programs, and data.

Protecting the user's assets is the primary goal of cyber security in banking. As more people become cashless, additional acts or transactions go online. People conduct transactions using digital payment methods like debit and credit cards, which must be protected by cybersecurity.

Current State of Cybersecurity in Banks

The market for IT security in banking has maintained its rapid growth in 2024. Since financial institutions are primary attack targets, investments in protection continue to scale. The market value reached $38.72 billion in 2021 , and projections see a compound growth rate of 22.4% and a value of $195.5 billion by 2029.

Between June 2018 and March 2022, Indian banks reported 248 successful data breaches by hackers and criminals; the government notified Parliament on Aug 2, 2022.

The Indian government has reported 11,60,000 cyber-attacks in 2022. It is estimated to be three times more than in 2019. India has been the target of serious cyberattacks, such as the phishing attempt that nearly resulted in a $171 million fraudulent transaction in 2016 against the Union Bank of India.

Another instance of a cyberattack involving online banking was Union Bank of India, resulting in a substantial loss. One of the officials fell for the phishing email and clicked on a dubious link, which allowed the malware to hack the system. The attackers entered the system using fake RBI IDs.

Banks have been mandated to strengthen their IT risk governance framework, which includes a mandate for their Chief Information Security Officer to play a proactive role in addition to the Board and the Board's IT committee playing a proactive role in ensuring compliance with the necessary standards.

Reasons Why Cybersecurity is Important in Banking

The banking industry has prioritized cybersecurity highly. Building credibility and trust is the cornerstone of banking, so it becomes much more essential. Here are five factors that demonstrate the significance of cybersecurity in banking industry and why you should care:

• Everyone looks to be entirely cashless and using digital payment methods like debit and credit cards. In this case, ensuring that the required cybersecurity safeguards are in place to protect your privacy and data is critical.
• After data breaches, it could be difficult to trust financial institutions. That's a significant issue for banks. Data breaches caused by a shoddy cybersecurity solution may easily lead to their consumer base moving their business elsewhere.
• The majority of the time, when a bank's data is compromised, you lose time and money. Recovery from the same can be unpleasant and time-consuming. It would entail canceling cards, reviewing statements, and keeping a watchful lookout for issues.
• Inappropriate use of your private information might be very harmful. Your data is sensitive and could expose a lot of information that could be exploited against you, even if the cards are revoked and fraud is swiftly dealt with.
• Banks need to be more cautious than most other firms. That is the price for banks to retain the kind of valuable personal data they do. If the bank's information is not safeguarded against risks from cybercrime, it could be compromised.

Top Cybersecurity Threats Faced by Banks

Cybercrimes have increased frequently over the past several years to the point where it is thought that they are one of the most significant hazards to the financial sector. Hackers have improved their technology and expertise, making it difficult for any banking sector to thwart the attack consistently. The following are some dangers to banks' cybersecurity:

1. Phishing Attacks

One of the most frequent problems with cyber security in banking sector is phishing assaults. They can be used to enter a financial institution's network and conduct a more severe attack like APT, which can have a disastrous effect on those organizations ( Advanced Persistent Threat ). In an APT, a user who is not permitted can access the system and use it while going unnoticed for a long time. Significant financial, data and reputational losses may result from this. According to the survey , phishing assaults on financial institutions peaked in the first quarter of 2021.

The term "Trojan" is used to designate several dangerous tactics hackers use to cheat their way into secure data. Until it is installed on a computer, a Banker Trojan looks like trustworthy software. However, it is a malicious computer application created to access private data processed or kept by online banking systems. This kind of computer program has a backdoor that enables access to a computer from the outside.

Around the globe, there were roughly 54,000 installation packages for mobile banking trojans in the first quarter of 2022. There has been an increase of more than 53% compared to last year's quarter. After declining for the first three quarters of 2021, the number of trojan packages targeting mobile banking increased in the fourth quarter.

3. Ransomware

A cyber threat known as ransomware encrypts important data and prevents owners from accessing it until they pay a high cost or ransom. Since 90% of banking institutions have faced ransomware in the past year, it poses a severe threat to them.

In addition to posing a threat to financial cybersecurity, ransomware also affects cryptocurrency. Due to their decentralized structure, cryptocurrencies allow fraudsters to break into trading systems and steal money.

4. Spoofing

Hackers use a clone site in this type of cyberattack. By posing as a financial website, they; 

• Design a layout that resembles the original one in both appearance and functionality.
• Establish a domain with a modest modification in spelling or domain extension.

The user can access this duplicate website via a third-party messaging service, such as text or email. Hackers can access a user's login information when the person is not paying attention. Seamless multi-factor authentication can solve a lot of these issues.

The Reserve Bank of India (RBI) reported bank frauds of 604 billion Indian rupees in 2022. From more than 1.3 trillion rupees in 2021, this was a decline.

Applications of Cybersecurity in Banking

Cybersecurity threats are constantly evolving, and the banking sector must take action to protect itself. Hackers adapt when new defenses threaten more recent attacks by developing tools and strategies to compromise security. The financial cybersecurity system is only as strong as its weakest link. It is critical to have a selection of cybersecurity tools and approaches available to protect your data and systems. Here are a few crucial cybersecurity tools:

1. Network Security Surveillance

Network monitoring is known as continuously scanning a network for signs of dangerous or intrusive behavior. It is frequently utilized with other security solutions like firewalls, antivirus software, and IDS (Intrusion Detection System). The software allows for either manual or automatic network security monitoring.

2. Software Security

Application security safeguards applications that are essential to business operations. It has features like an application allowing listing and code signing and could help you synchronize your security policies with file-sharing permissions and multi-factor authentication. The use of AI in cybersecurity will inevitably improve software security.

3. Risk Management

Financial cybersecurity includes risk management, data integrity, security awareness training, and risk analysis. Essential elements of risk management include risk evaluation and the prevention of harm from those risks. Data security also addresses the security of sensitive information.

4. Protecting Critical Systems

Wide-area network connections help avoid attacks on massive systems. It upholds the rigid safety standards set by the industry for users to follow when taking cybersecurity steps to protect their devices. It continuously monitors all programs and performs security checks on users, servers, and the network.

How to Make Banking Institutions Cyber Secure?

Security ratings are a great approach to indicate that you're concerned about the organization's cybersecurity. Still, you must also demonstrate that you're following industry and regulatory best practices for IT security and making long-term decisions based on that knowledge. A cybersecurity framework may be beneficial. You can go for Ethical Hacking training to enhance your knowledge further.

Top Cybersecurity Framework for Banks

A cybersecurity framework provides a common language and set of standards for security leaders across countries and industries to understand their security postures and those of their vendors. With a framework, it becomes easier to define the processes and procedures your organization must take to assess, monitor, and mitigate cybersecurity risk.

Let us take a look at some common financial cybersecurity frameworks:

1. NIST Cybersecurity Framework

The former president's executive order, Improving Critical Infrastructure Cybersecurity, asked for increased cooperation between the public and private sectors for recognizing, analyzing, and managing cyber risk. In response, the NIST Cybersecurity Framework was created. NIST has emerged as the gold standard for evaluating cybersecurity maturity, detecting security weaknesses, and adhering to cybersecurity legislation even when compliance is optional. To achieve NIST compliance , organizations can follow the guidelines outlined in the NIST Cybersecurity Framework and undergo rigorous assessments to ensure they meet the necessary standards.

2. The Bank of England's CBEST Vulnerability Testing Framework

CBEST vulnerability testing methodology was developed by the UK Financial Authorities in collaboration with CREST (the Council for Registered Ethical Security Testers) and Digital Shadows. It is an intelligence-led testing framework. CBEST's official debut took place on June 10, 2013.

CBEST leverages intelligence from reputable commercial and government sources to find possible attackers for a specific financial institution. Then, it imitates these potential attackers' methods to see how successfully they can breach the institution's Defenses. This enables a company to identify the weak points in its system and create and implement corrective action plans.

3. Cybersecurity and Privacy Framework for Privately Held Information Systems (the CIPHER Framework) 

Computer systems that organizations, both public and private, control and that hold personal data gathered from their clients are referred to as PHISs (Privately Held Information Systems).

CIPHER framework addresses electronic systems, digital information kinds, and methods for data sharing, processing, and upkeep (not paper documents).

The CIPHER methodological framework's primary goal is to suggest procedures and best practices for protecting privately held information systems online (PHIS). The following are the main features of CIPHER methodological framework: 

• Technology independence (versatility) refers to the ability to be used by any organization functioning in any field, even as existing technologies deteriorate or are replaced by newer ones. 
• PHIS owners, developers, and citizens are the three primary users who focus on this user-centric approach. 
• Practicality - outlines possible precautions and controls to improve or verify whether the organization is safeguarding data from online dangers. 
• It is simple to use and doesn't require specialized knowledge from businesses or individuals. 

Challenges in Implementing Cybersecurity in Banking

Some contributing elements have presented a significant challenge to digital cybersecurity in banking. The following are some of these: 

• Lack of Knowledge:  The general public's understanding of cybersecurity has been relatively low, and few businesses have significantly invested in raising that awareness. 
• Budgets That are Too Small and Poor Management:  Due to the low priority given to cybersecurity, it frequently receives short budgetary shrift. Cybersecurity continues to receive little attention from top management, and programs that assist it are accorded low priority. They might have underestimated how serious these risks are, which is why. 
• Identities and Access are Poorly Managed:  The core component of cybersecurity has always been identity and access management, especially now when hackers are in control and might access a business network with just one compromised login. Although there has been a little progress in this area, much work still needs to be done. 
• Increase in Ransomware:  Recent computer attacks have brought our attention to the growing threat of ransomware. Cybercriminals are beginning to employ various techniques to avoid being identified by endpoint protection code that concentrates on executable files. 
• Smartphones and Apps:  The majority of banking organizations now conduct business primarily through mobile devices. Every day the base grows, making it the best option for exploiters. Due to increased mobile phone transactions, mobile phones have become a desirable target for hackers. 
• Social Media:  Hackers have increased their exploitation as a result of social media adoption. Customers that are less knowledgeable expose their data to the public, which the attackers abuse.

Cybersecurity in Banking Sector as a Career

The banking sector is a prime target for cyber-attacks due to the sensitive financial data it handles. As digital transformation continues to reshape banking, the need for strict cybersecurity measures grows.

This demand has created numerous career opportunities for cybersecurity professionals within the banking industry. According to the Bureau of Labor Statistics, the employment of information security analysts is projected to grow 33% from 2020 to 2030, much faster than the average for all occupations.

The table below explores the job outlook for cybersecurity roles in the banking sector, highlighting key responsibilities, skills, and average salary.

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Every organization is concerned about cyber security. It is crucial for banks to have the proper cyber security solutions and procedures in place, especially for institutions that store a lot of personal data and transaction lists. Banking cyber security is an issue that cannot be bargained with. Hackers are more likely to target the banking sector as digitalization advances. 

KnowledgeHut is a platform that provides hundreds of courses in Data Science, Machine Learning, DevOps, Cybersecurity, Full Stack Development, and People and Process Certifications. With  KnowledgeHut top Cybersecurity certifications , you can increase your knowledge about cybersecurity in the banking industry and get the proper training.

Frequently Asked Questions (FAQs)

The goal of cybersecurity in the banking sector is to protect consumer assets. The bank should also take action to thwart the hackers. The number of financial-related acts is growing as more individuals work.

Through fraudulent transactions, cyberattacks can result in significant financial losses for the customer and the banks. Attackers who steal sensitive data from a banking institution may sell it. Data that has been stolen is later misused.

Antivirus software is typically used on bank computers, firewalls, fraud detection, and website encryption, which encrypts data so that only the intended receiver can read it. Your financial institution likely implements these security precautions if you bank online.

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Vitesh Sharma, a distinguished Cyber Security expert with a wealth of experience exceeding 6 years in the Telecom & Networking Industry. Armed with a CCIE and CISA certification, Vitesh possesses expertise in MPLS, Wi-Fi Planning & Designing, High Availability, QoS, IPv6, and IP KPIs. With a robust background in evaluating and optimizing MPLS security for telecom giants, Vitesh has been instrumental in driving large service provider engagements, emphasizing planning, designing, assessment, and optimization. His experience spans prestigious organizations like Barclays, Protiviti, EY, PwC India, Tata Consultancy Services, and more. With a unique blend of technical prowess and management acumen, Vitesh remains at the forefront of ensuring secure and efficient networking solutions, solidifying his position as a notable figure in the cybersecurity landscape.

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Cyber Security Essay for Students and Children

Cyber security essay.

Cybersecurity means protecting data, networks, programs and other information from unauthorized or unattended access, destruction or change. In today’s world, cybersecurity is very important because of some security threats and cyber-attacks. For data protection, many companies develop software. This software protects the data. Cybersecurity is important because not only it helps to secure information but also our system from virus attack. After the U.S.A. and China, India has the highest number of internet users.

Cyber Threats

It can be further classified into 2 types. Cybercrime – against individuals, corporates, etc.and Cyberwarfare – against a state.

Cyber Crime

Use of cyberspace, i.e. computer, internet, cellphone, other technical devices, etc., to commit a crime by an individual or organized group is called cyber-crime. Cyber attackers use numerous software and codes in cyberspace to commit cybercrime. They exploit the weaknesses in the software and hardware design through the use of malware. Hacking is a common way of piercing the defenses of protected computer systems and interfering with their functioning. Identity theft is also common.

Cybercrimes may occur directly i.e,  targeting the computers directly by spreading computer viruses. Other forms include DoS attack. It is an attempt to make a machine or network resource unavailable to its intended users. It suspends services of a host connected to the internet which may be temporary or permanent.

Malware is a software used to disrupt computer operation, gather sensitive information, or gain access to private computer systems. It usually appears in the form of code, scripts, active content, and other software. ‘Malware’ refers to a variety of forms of hostile or intrusive software, for example, Trojan Horses, rootkits, worms, adware, etc.

Another way of committing cybercrime is independent of the Computer Network or Device. It includes Economic frauds. It is done to destabilize the economy of a country, attack on banking security and transaction system, extract money through fraud, acquisition of credit/debit card data, financial theft, etc.

Hinder the operations of a website or service through data alteration, data destruction. Others include using obscene content to humiliate girls and harm their reputation, Spreading pornography, threatening e-mail, assuming a fake identity, virtual impersonation. Nowadays misuse of social media in creating intolerance, instigating communal violence and inciting riots is happening a lot.

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Cyber Warfare

Snowden revelations have shown that Cyberspace could become the theatre of warfare in the 21st century. Future wars will not be like traditional wars which are fought on land, water or air. when any state initiates the use of internet-based invisible force as an instrument of state policy to fight against another nation, it is called cyberwar’.

It includes hacking of vital information, important webpages, strategic controls, and intelligence. In December 2014 the cyberattack a six-month-long cyberattack on the German parliament for which the Sofacy Group is suspected. Another example 2008 cyberattack on US Military computers. Since these cyber-attacks, the issue of cyber warfare has assumed urgency in the global media.

Inexpensive Cybersecurity Measures

• The simplest thing you can do to up your security and rest easy at night knowing your data is safe is to change your passwords.
• You should use a password manager tool like LastPass, Dashlane, or Sticky Password to keep track of everything for you. These applications help you to use unique, secure passwords for every site you need while also keeping track of all of them for you.
• An easy way for an attacker to gain access to your network is to use old credentials that have fallen by the wayside. Hence delete unused accounts.
• Enabling two-factor authentication to add some extra security to your logins. An extra layer of security that makes it harder for an attacker to get into your accounts.
• Keep your Softwares up to date.

Today due to high internet penetration, cybersecurity is one of the biggest need of the world as cybersecurity threats are very dangerous to the country’s security. Not only the government but also the citizens should spread awareness among the people to always update your system and network security settings and to the use proper anti-virus so that your system and network security settings stay virus and malware-free.

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Impacts of Cyber Crime on Internet Banking

International Journal of Engineering Technology and Management Sciences

5 Pages Posted: 18 Nov 2021

Dr. Umamaheswari K.

Business Administration, Kebri Dehar University

Date Written: March 5, 2021

Internet banking or e-banking refers to the facility through information and communication technology. Internet banking is increasingly becoming popular because of both convenience and flexibility. Computer fraudsters are always trying to gain illegal access to the information of financial and business sectors for fraudulent activities. The customers of Internet banking always fear for their financial data when dealing with Internet banking and its services. There is a need to create awareness among Internet banking customer on how to avoid the available threats. The research in this paper critically analyzes and discusses the effects of cyber threats when dealing with online banking services. It is concluded that by the research that there is a need to increase safety measures in available cyber crimes when dealing with Internet banking and sensitive financial data.

Keywords: Cyber-Crime, Financial Fraud, Motives, Identity Theft

Suggested Citation: Suggested Citation

Dr. Umamaheswari K. (Contact Author)

Business administration, kebri dehar university ( email ), do you have a job opening that you would like to promote on ssrn, paper statistics, related ejournals, institutional & transition economics policy paper series.

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Home — Essay Samples — Law, Crime & Punishment — Cyber Crimes — Cybercrime In Banking Industry And Its Impacts On Banking Industry

Cybercrime in Banking Industry and Its Impacts on Banking Industry

• Categories: Banking Cyber Crimes

About this sample

Words: 1748 |

Published: May 7, 2019

Words: 1748 | Pages: 4 | 9 min read

Table of contents

Introduction, literature review, methodology, content analysis,  method used type of fraud age place about.

• Asked for confidential information
• Threatens customers
• Claimed calling from a government body
• Trap through false email links
• Claimed that user has won a lottery.
• INTERVIEW MALWARE 18-45 NEPAL, INDIA • Any corrupted file downloaded and data hacked
• INTERVIEW HACKING 18-40 ZIMBABWE, INDIA, NEPAL • Illegal intrusion into a computer system without authorization

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Writing a Proper Essay on Cyber-Security in Banking Sector

The banking industry is very important for all people who deal with money. Banking systems throughout the globe regulate the monetary stability in a concrete country. Great unions regulate huge regions. Once a bank crashes, a country may live through a default, which means economic catastrophe. As the result, it involves other spheres and destabilizes normal life in general. One of the reasons that lead to problems is poor cybersecurity . This article concentrates on 6 good ways that help to improve cybersecurity in the banking sector.

Nowadays, cyber-attacks have increased many a time. This is a huge threat to every citizen of the Earth because privacy is violated. The threat becomes even more troublesome and dangerous when it involves cyber-attacks on banks. If you want to write an essay on the topic, but if seems too complicated for you, you can address professionals. Simply type write my essay for me by EssayHub in the search bar and find your essay helper!

Cybercriminals get directly into the pockets of citizens. This becomes possible due to multiple attacks of hackers on banks. The banking sector is of huge importance for the stability of people’s well-being. A hacker attack, which ruins the banking industry, leads to a dangerous destabilization of the economy of the country. Accordingly, it triggers lots of factors that affect other spheres of human activity. Such danger negatively affects business, education, culture, and so on. Attacks from hackers in the banking sector must be prevented and stopped. There are six measures, which can help to overcome this threatening situation.

1. The threat should be taken seriously.

Some banks strongly believe that they will never be robbed thanks to dependable safeguards and firewalls. They think that they are simply invisible. This makes them less cautious and actually irresponsible. They understand that their protective measures are weak when it’s too late. A solution is to fully realize all threats and accept the possibility of being attacked. Afterward, banks should implement new equipment to prevent dangers. No matter how good the equipment is, it should be constantly improved to stop new attempts, which become better each time.

2. Good analysis is required.

Banking protection systems compile data on various issues. This gives an opportunity to enhance every point to ensure safety, as well as other branches. One may simply say “Here is a problem and I have information about how to fix and improve it”. Unfortunately, tons of information isn’t analyzed properly.  Regulators commonly don’t collect security data. As the result, there is no possibility to define the potential threats. It’s needed to change this function and gather all possible data. Thus, it will become much easier to foresee possible cyber assault.

3. All third-parties vendors must be verified.

They commonly give data on technology services. Nonetheless, the practice shows that they may open this data to other people, which sufficiently increases the risks. Other people may turn it to their advantage and steal money. Currently, this is a critical issue because there is no permission to verify third parties. The government should realize the risks and allow checking distributors of information in order to secure their own safety. Thus, the safety of banks will be enhanced as well.

4. Secure mobile operations.

Today, people actively use their cell phones for greater speed and comfort. It goes beyond all doubts that mobile banking is among them. Banks support this kind of access. People don’t have to stand in long queues while their turn comes. Banks thrive as well because they can make much more operations, which results in their prosperity at a great tempo. In the meanwhile, they don’t give enough heed to the security of mobile banking. It also requires modern equipment and advanced safeguards. Otherwise, clients become vulnerable to hacker attacks. Besides, banks are under a threat too.

5. Regulators should hire more IT specialists.

Currently, small and medium-sized banks aren’t protected properly. Commonly, they are considered to be units that are at low risk of attacks. IT specialists only make general analyses. This is a fatal mistake. Such banks are attacked on a constant basis. This inevitably leads to problems with bigger institutions. They become weaker. Banks should involve more experts to dig deeper into the slightest details.

6. The information on threats is supposed to be shared faster and with all the details.

People share information about potential hazards, but this process is way too slow and lacks details, which are crucial on such occasions. Once there appears suspicion, banks or clients don’t always have an immediate possibility to report the case. Sometimes, banks simply hide this data because they are afraid that their reputation will be shaken off. It’s much better to allow clients to share this vital information. This helps to prevent thousands of attacks annually.

The matter of banking security is important and it should be ensured in all possible ways and at any cost. There are at least six available variants. Unfortunately, some of them are disallowed. For example, banks hide or don’t compile data on cyber threats or the government doesn’t allow verifying third parties. Once these issues are solved, the danger of cyber-attacks will be significantly decreased”.

References:

• Anand, Priya. “6 ways the banking industry could improve on cybersecurity”. Marketwatch.com, https://www.marketwatch.com/story/6-ways-the-banking-industry-could-improve-on-cybersecurity-2015-07-02. 2015, 2 July.
• “How the Banking Industry is Fighting Cyber Crime”. Careersincybersecurity.com, https://careersincybersecurity.com/banking-industry-fighting-cyber-crime/. 2019
• Barnes, Samantha “HOW WILL BANKS ADDRESS GAPS IN CYBERSECURITY?” Internationalbanker.com, https://internationalbanker.com/technology/2017-will-banks-address-gaps-cybersecurity/. 2017, March 2.

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Financial crime and fraud in the age of cybersecurity

In 2018, the World Economic Forum noted that fraud and financial crime was a trillion-dollar industry, reporting that private companies spent approximately $8.2 billion on anti–money laundering (AML) controls alone in 2017. The crimes themselves, detected and undetected, have become more numerous and costly than ever. In a widely cited estimate, for every dollar of fraud institutions lose nearly three dollars, once associated costs are added to the fraud loss itself. 1 World Economic Forum Annual Meeting, Davos-Klosters, Switzerland, January 23–26, 2018; LexisNexis risk solutions 2018 True Cost of Fraud study, LexisNexis, August 2018, risk.lexisnexis.com. Risks for banks arise from diverse factors, including vulnerabilities to fraud and financial crime inherent in automation and digitization, massive growth in transaction volumes, and the greater integration of financial systems within countries and internationally. Cybercrime and malicious hacking have also intensified. In the domain of financial crime, meanwhile, regulators continually revise rules, increasingly to account for illegal trafficking and money laundering, and governments have ratcheted up the use of economic sanctions, targeting countries, public and private entities, and even individuals. Institutions are finding that their existing approaches to fighting such crimes cannot satisfactorily handle the many threats and burdens. For this reason, leaders are transforming their operating models to obtain a holistic view of the evolving landscape of financial crime . This view becomes the starting point of efficient and effective management of fraud risk.

The evolution of fraud and financial crime

Fraud and financial crime adapt to developments in the domains they plunder. (Most financial institutions draw a distinction between these two types of crimes: for a view on the distinction, or lack thereof, see the sidebar “Financial crime or fraud?”) With the advent of digitization and automation of financial systems, these crimes have become more electronically sophisticated and impersonal.

Financial crime or fraud?

For purposes of detection, interdiction, and prevention, many institutions draw a distinction between fraud and financial crime. Boundaries are blurring, especially since the rise of cyberthreats, which reveal the extent to which criminal activities have become more complex and interrelated. What’s more, the distinction is not based on law, and regulators sometimes view it as the result of organizational silos. Nevertheless, financial crime has generally meant money laundering and a few other criminal transgressions, including bribery and tax evasion, involving the use of financial services in support of criminal enterprises. It is most often addressed as a compliance issue, as when financial institutions avert fines with anti–money laundering activities. Fraud, on the other hand, generally designates a host of crimes, such as forgery, credit scams, and insider threats, involving deception of financial personnel or services to commit theft. Financial institutions have generally approached fraud as a loss problem, lately applying advanced analytics for detection and even real-time interdiction. As the distinction between these three categories of crime have become less relevant, financial institutions need to use many of the same tools to protect assets against all of them.

One series of crimes, the so-called Carbanak attacks beginning in 2013, well illustrates the cyber profile of much of present-day financial crime and fraud. These were malware-based bank thefts totaling more than $1 billion. The attackers, an organized criminal gang, gained access to systems through phishing and then transferred fraudulently inflated balances to their own accounts or programmed ATMs to dispense cash to waiting accomplices (Exhibit 1).

Significantly, this crime was one simultaneous, coordinated attack against many banks. The attackers exhibited a sophisticated knowledge of the cyber environment and likely understood banking processes, controls, and even vulnerabilities arising from siloed organizations and governance. They also made use of several channels, including ATMs, credit and debit cards, and wire transfers. The attacks revealed that meaningful distinctions among cyberattacks, fraud, and financial crime are disappearing. Banks have not yet addressed these new intersections, which transgress the boundary lines most have erected between the types of crimes (Exhibit 2).

A siloed approach to these interconnected risks is becoming increasingly untenable; clearly, the operating model needs to be rethought.

As banks begin to align operations to the shifting profile of financial crime, they confront the deepening connections between cyber breaches and most types of financial crime. The cyber element is not new, exactly. Until recently, for example, most fraud has been transaction based, with criminals exploiting weaknesses in controls. Banks counter such fraud with relatively straightforward, channel-specific, point-based controls. Lately, however, identity-based fraud has become more prevalent, as fraudsters develop applications to exploit natural or synthetic data. Cyber-enabled attacks are becoming more ambitious in scope and omnipresent, eroding the value of personal information and security protections.

In a world where customers infrequently contact bank staff but rather interact almost entirely through digital channels, “digital trust” has fast become a significant differentiator of customer experience. Banks that offer a seamless, secure, and speedy digital interface will see a positive impact on revenue, while those that don’t will erode value and potentially lose business. Modern banking demands faster risk decisions (such as real-time payments) so banks must strike the right balance between managing fraud and handling authorized transactions instantly.

The growing cost of financial crime and fraud risk has also overshot expectations, pushed upward by several drivers. As banks focus tightly on reducing liabilities and efficiency costs, losses in areas such as customer experience, revenue, reputation, and even regulatory compliance are being missed (Exhibit 3).

Bringing together financial crime, fraud, and cyber operations

At leading institutions the push is on to bring together efforts on financial crime, fraud, and cybercrime. Both the front line and back-office operations are oriented in this direction at many banks. Risk functions and regulators are catching on as well. AML, while now mainly addressed as a regulatory issue, is seen as being on the next horizon for integration. Important initial steps for institutions embarking on an integration effort are to define precisely the nature of all related risk- management activities and to clarify the roles and responsibilities across the lines of defense. These steps will ensure complete, clearly delineated coverage—by the businesses and enterprise functions (first line of defense) and by risk, including financial crime, fraud, and cyber operations (second line)—while eliminating duplication of effort.

All risks associated with financial crime involve three kinds of countermeasures: identifying and authenticating the customer, monitoring and detecting transaction and behavioral anomalies, and responding to mitigate risks and issues. Each of these activities, whether taken in response to fraud, cybersecurity breaches or attacks, or other financial crimes, are supported by many similar data and processes. Indeed, bringing these data sources together with analytics materially improves visibility while providing much deeper insight to improve detection capability. In many instances it also enables prevention efforts.

In taking a more holistic view of the underlying processes, banks can streamline business and technology architecture to support a better customer experience, improved risk decision making, and greater cost efficiencies. The organizational structure can then be reconfigured as needed. (Exhibit 4).

From collaboration to holistic unification

Three models for addressing financial crime are important for our discussion. They are distinguished by the degree of integration they represent among processes and operations for the different types of crime (Exhibit 5).

Generally speaking, experience shows that organizational and governance design are the main considerations for the development of the operating model. Whatever the particular choice, institutions will need to bring together the right people in agile teams, taking a more holistic approach to common processes and technologies and doubling down on analytics—potentially creating “fusion centers,” to develop more sophisticated solutions. It is entirely feasible that an institution will begin with the collaborative model and gradually move toward greater integration, depending on design decisions. We have seen many banks identify partial integration as their target state, with a view that full AML integration is an aspiration.

• Collaborative model. In this model, which for most banks represents the status quo, each of the domains—financial crime, fraud, and cybersecurity—maintain their independent roles, responsibilities, and reporting. Each unit builds its own independent framework, cooperating on risk taxonomy and data and analytics for transaction monitoring, fraud, and breaches. The approach is familiar to regulators, but offers banks little of the transparency needed to develop a holistic view of financial-crime risk. In addition, the collaborative model often leads to coverage gaps or overlaps among the separate groups and fails to achieve the benefits of scale that come with greater functional integration. The model’s reliance on smaller, discrete units also means banks will be less able to attract top leadership talent.
• Partially integrated model for cybersecurity and fraud. Many institutions are now working toward this model, in which cybersecurity and fraud are partially integrated as the second line of defense. Each unit maintains independence in this model but works from a consistent framework and taxonomy, following mutually accepted rules and responsibilities. Thus a consistent architecture for prevention (such as for customer authentication) is adopted, risk-identification and assessment processes (including taxonomies) are shared, and similar interdiction processes are deployed. Deeper integral advantages prevail, including consistency in threat monitoring and detection and lower risk of gaps and overlap. The approach remains, however, consistent with the existing organizational structure and little disrupts current operations. Consequently, transparency is not increased, since separate reporting is maintained. No benefits of scale accrue, and with smaller operational units still in place, the model is less attractive to top talent.
• Unified model. In this fully integrated approach, the financial crimes, fraud, and cybersecurity operations are consolidated into a single framework, with common assets and systems used to manage risk across the enterprise. The model has a single view of the customer and shares analytics. Through risk convergence, enterprise-wide transparency on threats is enhanced, better revealing the most important underlying risks. The unified model also captures benefits of scale across key roles and thereby enhances the bank’s ability to attract and retain top talent. The disadvantages of this model are that it entails significant organizational change, making bank operations less familiar to regulators. And even with the organizational change and risk convergence, risks remain differentiated.

The imperative of integration

The integration of fraud and cybersecurity operations is an imperative step now, since the crimes themselves are already deeply interrelated. The enhanced data and analytics capabilities that integration enables are now essential tools for the prevention, detection, and mitigation of threats.

Most forward-thinking institutions are working toward such integration, creating in stages a more unified model across the domains, based on common processes, tools, and analytics. AML activities can also be integrated, but at a slower pace, with focus on specific overlapping areas first.

The starting point for most banks has been the collaborative model, with cooperation across silos. Some banks are now shifting from this model to one that integrates cybersecurity and fraud. In the next horizon, a completely integrated model enables comprehensive treatment of cybersecurity and financial crime, including AML. By degrees, however, increased integration can improve the quality of risk management, as it enhances core effectiveness and efficiency in all channels, markets, and lines of business.

Strategic prevention: Threats, prediction, and controls

The idea behind strategic prevention is to predict risk rather than just react to it. To predict where threats will appear, banks need to redesign customer and internal operations and processes based on a continuous assessment of actual cases of fraud, financial crime, and cyberthreats. A view of these is developed according to the customer journey. Controls are designed holistically, around processes rather than points. The approach can significantly improve protection of the bank and its customers (Exhibit 6).

To arrive at a realistic view of these transgressions, institutions need to think like the criminals. Crime takes advantage of a system’s weak points. Current cybercrime and fraud defenses are focused on point controls or silos but are not based on an understanding of how criminals actually behave. For example, if banks improve defenses around technology, crime will migrate elsewhere—to call centers, branches, or customers. By adopting this mind-set, banks will be able to trace the migratory flow of crime, looking at particular transgressions or types of crime from inception to execution and exfiltration, mapping all the possibilities. By designing controls around this principle, banks are forced to bring together disciplines (such as authentication and voice-stress analysis), which improves both efficacy and effectiveness.

Efficiencies of scale and processes

The integrated fraud and cyber-risk functions can improve threat prediction and detection while eliminating duplication of effort and resources. Roles and responsibilities can be clarified so that no gaps are left between functions or within the second line of defense as a whole. Consistent methodologies and processes (including risk taxonomy and risk identification) can be directed toward building understanding and ownership of risks. Integrating operational processes and continuously updating risk scores allow institutions to dynamically update their view on the riskiness of clients and transactions.

Data, automation, and analytics

Through integration, the anti-fraud potential of the bank’s data, automation, and analytics can be more fully realized. By integrating the data of separate functions, both from internal and external sources, banks can enhance customer identification and verification. Artificial intelligence and machine learning can also better enable predictive analytics when supported by aggregate sources of information. Insights can be produced rapidly—to establish, for example, correlations between credential attacks, the probability of account takeovers, and criminal money movements. By overlaying such insights onto their rules-based solutions, banks can reduce the rates of false positives in detection algorithms. This lowers costs and helps investigators stay focused on actual incidents.

The aggregation of customer information that comes from the closer collaboration of the groups addressing financial crime, fraud, and cybersecurity will generally heighten the power of the institution’s analytic and detection capabilities. For example, real-time risk scoring and transaction monitoring to detect transaction fraud can accordingly be deployed to greater effect. This is one of several improvements that will enhance regulatory preparedness by preventing potential regulatory breaches.

The customer experience and digital trust

The integrated approach to fraud risk can also result in an optimized customer experience. Obviously, meaningful improvements in customer satisfaction help shape customer behavior and enhance business outcomes. In the context of the risk operating model, objectives here include the segmentation of fraud and security controls according to customer experience and needs as well as the use of automation and digitization to enhance the customer journey. Survey after survey has affirmed that banks are held in high regard by their customers for performing well on fraud.

Unified risk management for fraud, financial crime, and cyberthreats thus fosters digital trust, a concept that is taking shape as a customer differentiator for banks. Security is clearly at the heart of this concept and is its most important ingredient. However, such factors as convenience, transparency, and control are also important components of digital trust. The weight customers assign to these attributes varies by segment, but very often such advantages as hassle-free authentication or the quick resolution of disputes are indispensable builders of digital trust.

A holistic view

The objective of the transformed operating model is a holistic view of the evolving landscape of financial crime. This is the necessary standpoint of efficient and effective fraud-risk management, emphasizing the importance of independent oversight and challenge through duties clearly delineated in the three lines of defense. Ultimately, institutions will have to integrate business, operations, security, and risk teams for efficient intelligence sharing and collaborative responses to threats.

How to proceed?

The target fraud-risk operating model: key questions for banks.

In designing their target risk operating model for financial crimes, fraud, and cybersecurity, leading banks are probing the following questions.

Processes and activities

• What are the key processes or activities to be conducted for customer identification and authentication, monitoring and detection of anomalies, and responding to risks or issues?
• How frequently should specific activities be conducted (such as reporting)?
• What activities can be consolidated into a “center of excellence”?

People and organization

• Who are the relevant stakeholders in each line of defense?
• What skills and how many people are needed to support the activities?
• What shared activities should be housed together (for example, in centers of excellence)?
• What is the optimal reporting structure for each type of financial crime—directly to the chief risk officer? To the chief operations officer? To IT?

Data, tools, and technologies

• What data should be shared across cybersecurity, fraud, and other financial-crime divisions? Can the data sit in the same data warehouses to ensure consistency and streamlining of data activities?
• What tools and frameworks should converge (for example, risk-severity matrix, risk-identification rules, taxonomy)? How should they converge?
• What systems and applications do each of the divisions use? Can they be streamlined?
• What are the governance bodies for each risk type? How do they overlap? For example, does the same committee oversee fraud and cybersecurity? Does committee membership overlap?
• What are the specific, separate responsibilities of the first and second lines of defense?
• What measurements are used to set the risk appetite by risk type? How are they communicated to the rest of the organization?

When banks design their journeys toward a unified operating model for financial crime, fraud, and cybersecurity, they must probe questions about processes and activities, people and organization, data and technology, and governance (see sidebar “The target fraud-risk operating model: Key questions for banks”).

Most banks begin the journey by closely integrating their cybersecurity and fraud units. As they enhance information sharing and coordination across silos, greater risk effectiveness and efficiency becomes possible. To achieve the target state they seek, banks are redefining organizational “lines and boxes” and, utility.

Most have stopped short of fully unifying the risk functions relating to financial crimes, though a few have attained a deeper integration. A leading US bank set up a holistic “center of excellence” to enable end-to-end decision making across fraud and cybersecurity. From prevention to investigation and recovery, the bank can point to significant efficiency gains. A global universal bank has gone all the way, combining all operations related to financial crimes, including fraud and AML, into a single global utility. The bank has attained a more holistic view of customer risk and reduced operating costs by approximately $100 million.

As criminal transgressions in the financial-services sector become more sophisticated and break through traditional risk boundaries, banks are watching their various risk functions become more costly and less effective. Leaders are therefore rethinking their approaches to take advantage of the synergies available in integration. Ultimately, fraud, cybersecurity, and AML can be consolidated under a holistic approach based on the same data and processes. Most of the benefits are available in the near term, however, through the integration of fraud and cyber operations.

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