Page 32 - Banking Finance May 2023

ARTICLE

Group 2: those that pose additional risks compared with covers establishing common terminologies related to cyber
Group 1. This includes all unbacked crypto assets along with incidents and the proposal to develop a common format for
any tokenised traditional assets and stablecoins that fail incident reporting exchange (FIRE). Harmonised CIR schemes
certain classification conditions. For group 2 crypto assets, necessitate a common language and common definition and
a bank's total exposure must not exceed 2% of Tier 1 capital understanding of what constitutes a cyber incident, to avoid
and should generally be lower than 1%. over reporting of incidents. A review of incident reporting
templates and stocktake of authorities' cyber incident
The new standard includes description of how the reporting regimes indicated a high degree of commonality
operational risk, liquidity, leverage ratio and large exposure in the information requirements for cyber incident reports.
requirements would be applied to banks' crypto assets Building on this, it is proposed to develop a common
exposure.The FSB has proposed a framework for the reporting format that could be further considered among
international regulation of crypto assets activities. It financial institutions.
observed that the turmoil in crypto assets market highlights
their intrinsic volatility and structural vulnerabilities whereas The BIS working paper on cyber risk in central banking has
their interconnectedness with the traditional financial highlighted phishing and social engineering as the most
system is increasing. Its recommendations seek to promote common methods of cyber-attacks related to central banks.
international consistency on regulatory and supervisory The growing adoption of cloud-based services as well as the
approaches, which are grounded in the principle of "same shift to remote work has key implications for cyber security
activity, same risk, same regulation" approach. strategies. In the absence of a well-defined perimeter, one
of the challenges of cloud adoption relates to information
Financial Innovation and Financial Stability: The security being threatened by lack of consistently applied
IOSCO report on innovation facilitators (IFs) has highlighted security controls. The BIS survey reveals that central banks
the use of financial technology to enhance risk management, have notably increased their investments in cyber security
compliance, and supervision. It covers three types of IFs, viz., since 2020, giving priority to technical security control and
innovation hubs, regulatory sandboxes and regulatory resiliency and focussing on developing incident response
accelerators. Innovation hubs and regulatory sandboxes may plans. Major cyber shocks may exacerbate liquidity risk and
provide regulators with additional market intelligence and consequent fire-sale of assets for firms. Thus, cybersecurity
can constitute a source for understanding potential risks and measures and regulations are receiving greater attention
mitigating elements. While establishing IFs, authorities from policymakers.
should undertake a comprehensive analysis of function,
scope and structure along with potential impact on investor Source: University of Maryland CISSM Cyber Attacks
protection, market integrity and financial stability. Test Database.
scenarios,expected outcomes and the target audience Source: University of Maryland CISSM Cyber Attacks
should be properly defined, and authorities should engage Database.
with key stakeholders, industry associations and other
relevant authorities to address regulatory barriers for 2. Domestic Regulatory Developments
beneficial innovations.
The Financial Stability and Development Council (FSDC),
chaired by the Union Finance Minister, met on September
Cyber Risk and Financial Stability: The FSB's 15, 2022. The Council deliberated on early warning
consultative document on cyber incident reporting has indicators for the economy, improving the efficiency of the
proposed greater convergence in cyber incident reporting existing financial/ credit information systems, issues of
(CIR) for enhancing cyber resilience of the financial system. governance and management in systemically important
It has set out recommendations to address operational financial institutions (SIFIs), strengthening the cyber security
challenges arising from the process of collection of framework in financial sector, common know-your-customer
information as well as reporting of cyber incidents to (KYC) for all financial services and related matters, status of
multiple authorities, especially during the early stages of a the account aggregator (AA) framework, issues relating to
cyber incident when confidence may be low about the cause financing of the power sector, the strategic role of the
and probable impact of the incident. The consultation also International Financial Services Centre (IFSC) in India, inter-

30 | 2023 | MAY | BANKING FINANCE