Cyber crime and house prices among bank managers’ top concerns

The classic image of a bank heist, replete with guns and balaclava-clad criminals, increasingly belongs in the past. Real-life robberies remain a threat. But financial companies are becoming more concerned by scams of a virtual kind.
The Bank of England’s twice-yearly systemic risk poll , released on Monday, found that more respondents, mostly risk managers in financial businesses, were viewing cyber crime as a main threat to the stability of their bank. Almost a quarter said they were worried about “operational risk” – from 14 per cent in the previous poll – with cyber security the threat that was most frequently mentioned.

The release of the survey comes after Andy Haldane, the BoE’s executive director for financial stability, told MPs last week that hacking posed an increasing threat to the UK’s financial system because of its potential to “wreak havoc” on society through its impact on the payments systems that channel cash around the economy. “This is a rapidly rising area of risk with potentially systemic implications. It calls for a system-wide response,” he told parliament’s influential Treasury select committee last Wednesday.

Mr Haldane said four of the UK’s five largest lenders had identified cyber crime as a concern for the first time at a meeting with BoE officials earlier this year.

“Boards are starting to say this is one of their top priorities,” said Ken Allan, a partner at Ernst & Young. “Previously, when one person raised the issue of cyber security, someone else might say, is it more important than Libor?”

The growing concern over cyber crime reflects an increase in the frequency of attacks. Cyber criminals have also become more sophisticated, going beyond mere phishing scams. So-called distributed denial of service attacks, which involve attempts by hackers to stymie online banking services, are more common.

“The threat has evolved towards targeted attacks, and they tend to be very difficult to detect,” said Ruggero Contu, an analyst at Gartner, a research firm.
Last month US prosecutors said cybercriminals had stolen $45m from cash machines in 26 countries within hours by hacking into bank systems and raising the withdrawal limits on individual accounts.

Financial companies in Britain are particularly likely to arouse the interest of hackers. “Criminals like to target fast payment systems. In the UK, banks have to execute payments within hours, whereas in the US it could be days,” George Tubin, a strategist at security software company Trusteer, said. “The UK banks know this, and have some of the best crime prevention systems out there.”

Meanwhile, a quarter of respondents to the BoE survey identified the risk of property price falls as a growing concern. The BoE said the higher figure – from 14 per cent in the previous poll – “could be consistent with views of prices becoming overinflated or about to become overinflated”.

Sir Mervyn King, the governor of the BoE, is one of a number of high-profile officials who have criticised the Help to Buy scheme, unveiled by chancellor George Osborne in the budget in March to buoy the housing market.

The risks posed by an economic downturn or a sovereign default remained at the top of concerns cited by risk managers. However, the number of respondents identifying sovereign risk as the number one threat declined from 68 per cent to 38 per cent.

The BoE data also show that risk managers are less concerned about a “high impact” event destabilising the UK financial system than at any time since the survey began. Only 8 per cent of respondents, from a fifth during the previous survey, believe there is a high or very high probability of such an event occurring before 2016.