Australian businesses and households are at increased risk of cyber attacks, says RBA assistant governor Michele Bullock, and this could threaten financial system stability.
Ms Bullock told the 10th Annual Commonwealth Bank Global Markets Conference in Sydney that while a sharp contraction in global growth was also a threat, concerns were mounting about Australia being vulnerable to financial losses, disruption or reputational damage from a malicious breach of a firm’s information systems.
“Cyber-attacks are becoming more organised and sophisticated,” she said.
“It can manifest itself in different ways — data theft, system disruptions, data manipulation and financial attacks.”
Indebted households vulnerable
Financial institutions are high on the list of entities at risk from cyber attacks, and they are well aware of the risks.
“One simple measure of this is to count mentions of the word ‘cyber’ in the annual reports of the major Australian banks. In 2012 the word was not mentioned, but in 2017 there were 30 mentions,” she said.
The attack on Bangladesh Bank, for example, resulted in a loss of US$81 million but it could have been much larger.
“A successful attack on an institution could even result in a lack of confidence in the banking system more broadly, with potential withdrawals of funds from financial institutions and liquidity issues for the financial system,” she said.
“If an attack disrupted payment systems it could cause significant difficulties for households and businesses and disrupt economic activity.”
A disruption to the settlement of transactions for an extended period could cause issues for the operations of markets and general stability.
While these were “unlikely outcomes”, regulators were nevertheless focusing on how financial institutions are mitigating the risks.
“It is a risk that is continuing to rise and will require continued vigilance and investment in mitigation into the future,” she said.
Trade tensions with China could boil over
Ms Bullock said markets were vulnerable to a sharp increase in risk sentiment which could have implications for banks’ offshore funding and their assets.
“Global growth could contract sharply for a number of reasons, including escalating trade tensions or financial instability in China,” she said.
Although a depreciating exchange rate would help mitigate any effects, there would be implications from this for the Australian economy.
“This would impact the highly indebted household sector as well as the balance sheets of financial institutions,” she said.
“The recent policies to strengthen lending standards will help to guard against widespread financial stress, but there is a risk that if the downturn were significant enough, the financial impact on banks and borrowers would amplify the shock.”
She said Australian banks had now largely completed a decade-long transition to stronger capital and liquidity positions, making them more resilient to adverse shocks than before the global financial crisis.
A recent focus on tightening lending standards has further improved the resilience of both bank and household balance sheets, she added.
Banks yet to feel financial pain post-royal commission
While the royal commission has brought to light some poor behaviour by the Australian banks, the direct financial impact on them had been “relatively modest” so far,” Ms Bullock said.
International experience showed poor culture could have a significant adverse impact on banks, including on their financial performance and capital position through remediation costs and fines, she said.
“The fines to date are relatively small compared with the major banks’ combined profits of around $30 billion per annum.
“But there are also costs from remediation of past behaviour, which have been reflected in banks’ profit announcements in recent times, and there is also the possibility of class actions.”
She pointed out there were also likely to be increased and ongoing costs of compliance, as well as “changes to business models to address the risk of future misconduct” which “could more permanently impact banks’ financial performance”.
These changes, however, are likely to increase the resilience of the financial sector in the medium term, she said, even if at the expense of lower returns.
Despite growing quickly, debt financing by the non-ADI (authorised deposit-taking institution) sector is only around 7 per cent of total financial assets in Australia. But APRA is monitoring them.
“If APRA judges that the non-ADI lenders as a group pose a risk to financial stability, it has the power to make rules covering the lending of this sector,” she said.
“While we are nowhere near any such threshold, these reserve powers provide APRA with the ability to directly address such risks if they were to arise.”
- Target, Neiman Marcus not only victims of cyber attacks: sources
- Report: FAA Systems Vulnerable to Cyber Attacks
- Astorino says county was never told of cyber attack on dam
- America is still vulnerable to terrorism as Al Qaeda-affiliated groups grow and turn to cyber attacks: study
- Cyber attack on U.S. power grid could cost economy $1 trillion: report
- Yaz and other birth control pills to get harsher labels warning users about higher risk of blood clots
- Pelosi bombarded with 'obscene and sick' calls, texts after cyber attack
- North Korean official denies involvement in Sony cyber-attack over 'The Interview'
- North Korea doesn't deny a role in cyber-attack on Sony Pictures computer system, allegedly over 'The Interview'
- Anonymous hackers prepare to launch cyber attacks on ISIS