The Impact of Cyber Insurance and Financial Data Legislation in 2021
Cyberattacks are on the rise as never before, and many firms have failed to keep pace. New legislation and insurance compliance will soon force their hand.
Ilia Sotnikov, VP of Product Management at Netwrix, looks at the state of cybersecurity in financial services and the external factors that drive it forward in 2021.
The past year has required financial teams and organisations to review many of their technical processes, especially as employees were forced to work remotely almost overnight. Research shows that 30% of financial organisations feel they are now at greater cybersecurity risk now than they were pre-pandemic. The majority (64%) are concerned about both more frequent cyberattacks and the security gaps caused by remote work – but despite this increased concern about malicious activity, the most reported incidents for financial firms involved human errors.
As a result, 2021 will certainly see financial organisations reassessing their data security policies to be fit for purpose in a post-pandemic digital world. However, given the wide range of financial services emerging, financial organisations today are on very different security maturity levels. Some have consistent ongoing risk management, established processes and dedicated IT security teams. Others just expect IT operations to handle security as part-time assignment. Many financial organisations from the less technically mature side of the spectrum or still heavily rely on legacy systems simply don’t have internal motivation to adopt better security practices.
External pressures for financial services
The good news is that moving into 2021, these organisations will be driven to increase security maturity by external factors: cyber insurance and privacy regulations. With 2021 bringing both new privacy laws and stricter enforcement of existing regulations to minimise the risk of incurring steep fines for compliance failures, businesses will turn to cyber insurance.
The bad news is those policies will come with their own security standards and requirements, such as regular risk assessment and effective detection and response capabilities.
Many financial organisations from the less technically mature side of the spectrum or still heavily rely on legacy systems simply don’t have internal motivation to adopt better security practices.
In 2020, many privacy-related bills were pushed down in priority due to more urgent tasks related to global pandemic. However, this isn’t an issue that will go away. Any British or European businesses that deal with local or international markets have to comply with GDPR – and with Twitter’s recent fine of approximately €500,000 for failing to promptly declare and properly document a data breach marking the first cross-border GDPR ruling, there will be a renewed vigour in the finance industry to ensure compliance. Furthermore, payments-related legislation such as PCI-DSS and PSD2 will face further strains given that a huge consequence of the pandemic has catalysing the move of payments becoming cashless.
A balancing act to compliance and security
This renewed focus on privacy laws require financial organisations to pay more attention to what data they have on hands, how they handle this data, and who is accessing it and why. Failing to document this or to follow documented policies can result in significant fines in case of consumer complaints or a data breach. This may force finance firms to adopt security and data governance practices they did not have in place this year.
The other driving factor for financial firms to revamp their data security measures is cyber insurance. The cyber insurance market is growing rapidly at an impressive 26% CAGR. This growth is fueled by the surge in cyberattacks and businesses seeking to offset their risks, and executives and board members recognising potential breaches or ransomware threats as business risks.
Finance companies are more likely to turn to insurance as an option to deal with the potential cost of these new risks. However, cyber insurance is not a “pay-and-forget” thing. To lower the risks that their customers will be breached, cyber insurance carriers are requiring them to comply with their own security standards, such as regular risk assessment and effective detection and response capabilities. This way, cyber insurance carriers contribute to the growth of security solutions that provide such functionalities. Finally, they force companies to cover security fundamentals and regularly reevaluate their IT risk programs and carrier’s policy changes to ensure adequate coverage, as insurance is not a panacea for a weak or inconsistent security programme.
The long view
It’s safe to say that in the coming year, insurance and legislation will drive mass adoption on fundamental security practices for finance firms and teams. However, given the particular data pressures they face, financial services will be faced with a balancing act of meeting insurance criteria as well as complying with the regulatory standards themselves. While this may throw up some data management challenges, in the long run, it will certainly prove beneficial in helping financial services improve their cyber security posture.