Balancing innovation with cyber security in private banking

Private banks need to boost their cyber defences by reviewing corporate governance and being extra vigilant when working with third-party providers.

In the age of digital transformation and high demand for personalised service, the spectre of cyber security breaches looms large in the hallowed halls of private banking, where exclusivity meets bespoke financial services.

Recent incursions into the financial sector underscore the gravity of the situation, demanding a recalibration of priorities. As we dissect the intersection of personalisation and security, private banking institutions must fortify their cyber defences.

Private banks are the trusted repository for vast amounts of information, from financial data to investment strategies. Possible threats range from phishing attacks and ransomware to highly coordinated, sometimes state-sponsored, organisational-wide attacks. Client trust, once lost, may be impossible to regain.

Cyber security: beyond the IT department's brief

In the environs of private banking, the veneer of discretion can quickly erode with the fallout from a security breach. Far from a technicality delegated to the IT department and chief information officer, cyber security demands a panoramic view from the very highest levels of the organisation. The ramifications of a compromise in this realm extend far beyond financial losses, cascading into reputational erosion and breach of high net worth clients' trust.

The axiom that not all publicity is good publicity is acutely accurate in cyber security. Cyber threats to the financial system transcend pecuniary implications, reaching into the realm of public trust and confidence. As malevolent actors, be they criminals or state-sponsored entities, become more sophisticated, private banking institutions must remain vigilant in the face of an ever-evolving threat landscape.

The prescient warning from European Central Bank president Christine Lagarde, on potential ramifications of a cyber attack, underscores the symbiotic relationship between cyber security and financial stability. The Financial Stability Board's admonition regarding the systemic implications of uncontained cyber incidents reinforces the imperative for private banking entities to elevate cyber security to the upper echelons of their strategic priorities.

Escalating risk from digital channels

The increased threat level and potential consequences for consumers are also being recognised by legislators. The Digital Operational Resilience Act (Dora) in the EU responds to escalating risks associated with digitising financial services. Dora requires organisations to address gaps in their armour against operational risks. Its focus on protection, detection, containment, recovery and repair provides clear requirements for private banking entities to fortify their digital ramparts.

In the crucible of high net worth financial services, adapting to the evolving threat matrix requires more than a mere nod to cyber security. It necessitates a paradigm shift, but where to start?

The first priority is to refine corporate governance, culture and training, recalibrating the organisational ethos towards cyber security. Private banks must review their corporate governance and the culture within the organisation. Threats and breaches must be discussed and addressed openly rather than hidden. Employee training programmes must be more than a ‘tick box’ exercise, ingraining a collective vigilance against cyber threats.

Policies must also be tailored for non-standard services, to as to strike the balance between customisation and stringent cyber security norms. Non-standard services, while the hallmark of private banking, require nuanced cyber security policies. Personalisation should not serve as a chink in the armour; rather, it should be an integrated facet of a security-conscious paradigm. Multi-layered security, regular audits, an effective incident response plan and increased automation to remove the possibility of human error all play a part.

Wealth managers must also be vigilant when engaging with third-party providers, with more  screening and standardising to mitigate collaboration cyber security risks. Collaborations with third-party providers, often inevitable in the private banking ecosystem, necessitate stringent cyber security standards. The vulnerability emanating from external partnerships demands meticulous risk assessment and management.

Finally, it is vital to create a resilient risk and incident management system, using a proactive framework to thwart, detect, and recover from potential threats. This is non-negotiable. Proactivity in risk assessment and astute incident response planning are the crux of maintaining client trust and organisational integrity.

Balancing Act

In an era where digital transformation converges with heightened client expectations, private banks must perform a delicate balancing act. Striking the equilibrium between providing bespoke, personalised services to high-net-worth clients and fortifying the bulwarks of cyber security is the defining challenge.

As more and more offerings in the private banking sector are digitised, there are considerable opportunities to create valuable services that lead to long-lasting, mutually profitable client relationships. However, the importance of trust cannot be over-emphasised, and organisations must take proactive steps to maintain their client's confidence.

Claire Agutter is the founder of IT consultancy Scopism