A panel of experts convened by security experts Brookcourt Solutions has issued a warning that in their rush to comply with the Markets in Financial Instruments Directive (MiFID) by the November deadline, banks are overlooking the security risks, exposing them to a range of potentially damaging new threats.
“MiFID implementation is complex, involving the coordination of resources across many departments in investment firms,” says Phil Higgins, executive partner at Brookcourt Solutions. “Only a tiny number of firms look like they are on track to hit the 1 November deadline, while the vast majority face a range of challenges over the coming months in their journey to compliance. But as firms get to grips with identifying and storing the vast amounts of information required by MiFID, they need to be mindful that it will expose existing flaws in their security, as well as introduce new threats that they will now have to manage. Research suggests that the cost of MiFID IT implementation, in the UK alone, is set to surpass 1 billion, with typical UK investment banks spending upwards of 10 million each.”
Brookcourt says security issues highlighted in its initial research found that the following issues are the key concern of investment firms:
1. The importance of building security into record keeping processes – ensuring the long-term integrity and security of records 2. There are new risk drivers, which are increasing existing risk and introducing new internal and external risks 3. Technical solutions exist to many of the security risks that MiFID will introduce – the challenge is getting everything to work together 4. Some firms have already invested heavily in security solutions and there is an opportunity to re-purpose and re-use 5. There needs to be a change in mindset inside firms – many of the new risks come from ‘soft’ factors such as people’s behaviour and attitude 6. Policy management and identity management will be key challenges 7. Timeliness – the ability to detect intrusions or anomalous behaviour quickly – offers major advantages 8. Firms that do not tackle security issues raised by MiFID will substantially raise their risk profile and leave themselves open to both reputational damage and legal action.
The panel of experts convened by Brookcourt were able to offer three different perspectives on the issues firms are facing. It consisted of Ovum’s Graham Titterington, a business continuity and security analyst; PJ Di Giammarino, CEO of financial services industry think tank JWG-IT; and Brookcourt’s own Phil Higgins.
“With only six months left until ‘M’ day, firms are waking up to the profound implications MiFID has on business processes and supporting infrastructure,” said PJ Di Giammarino. “What JWG-IT are saying is that while it’s important to implement compliant processes and systems, these also need to be secure. Security is one of the key topics that our new financial services Technical Special InterestGroup (TechSIG) will be looking at over the coming months.”
Ovum’s Graham Titterington noted that there was a major market opportunity for security and storage vendors, and that technical solutions to many of the threats being thrown up by MiFID were readily available. “MiFID presents a major opportunity for IT security &storage vendors and service providers,” he commented. “The main requirements lie in the area of secure, long-term and high-volume storage ofinformation, with a rich layer of audit and reporting functionality built on top of it to allow MiFID compliance to be demonstrated. There is a particular challenge in providing this across a fast moving domain with multiple players -such as the financial trading environment.”