A cyber attack on a central securities depository (CSD) could result in an “every man for themselves” situation, according to panelists at the Global Custody Forum in London.
The threat from hackers and cyber attacks has increased dramatically following the attack on J.P. Morgan’s accounts in October. With issues over cyber security now becoming at the forefront in the financial and securities services industry, experts have become concerned on what will happen if a CSD, which holds assets valued in the trillions, was attacked.
“I think the industry, as a whole, need to get our heads around the risks of what happens if a CSD is hacked because right now, I think it would be every man for themselves,” says Sonia Maloney, chief operating officer, Hesperian Capital Management.
With more business being concentrated through a CSD, greater attention is now shifting towards the security of market infrastructures from both default and cyber attacks.
“You have got to make sure the infrastructure you are putting business through is sufficiently capitalized, it has some buffers in its model. But I agree, if there was something radical that happened in the space of cyber security it would be every man for themselves,” adds Rob Scott, head of custody and collateral solutions, Commerzbank.
“It forces you to look at asset safety, segregation, and all the due diligence around account structures in the event of a meltdown.”
Regulators and market participants are currently fiercely debating the recovery and resolution tools of central counterparties (CCPs) in the case of a default or a member default.
In the CCP case, it takes contributions from its members to fund the default, however in a CSD environment, this is quite different.
Because of these concerns, the soundness and transparency of CSDs and custodians in the market is now becoming a key decision-maker for investment managers.
“The outcome of all of this is that it is no longer about investment decisions there needs to be transparency, that is what we look for in our service providers, and also that visibility of the total risk as a whole,” adds Maloney.
CSD Cyber Threat – “Every Man For Themselves,” Says GCF Panel
A cyber attack on a central securities depository (CSD) could result in an “every man for themselves” situation, according to panelists at the Global Custody Forum in London.