Financial institutions face numerous risks that must be identified and addressed to ensure the safety and security of their business, customers, investors, and partners. While many risks are actively managed, there are certain areas that often go overlooked, leaving financial institutions vulnerable to potential threats.
One area where risk is frequently underestimated is during mergers and acquisitions (M&As). Financial institutions typically have processes in place to manage the financial, regulatory, and cybersecurity risks associated with these transactions. However, due diligence assessments often fail to uncover critical data about the acquired institution. For example, does the acquiring institution have a comprehensive understanding of the cloud infrastructure and security configurations of the acquired company? Are the application codes tested thoroughly for vulnerabilities that cybercriminals can exploit to gain unauthorized access or compromise sensitive data? These oversights can have serious consequences, leading to data breaches or service disruptions.
Another overlooked area of risk for financial institutions is related to third-party relationships. All companies rely on various third-party vendors, such as cloud services providers, software-as-a-service (SaaS) vendors, and application developers. These relationships introduce significant risks as cybercriminals can exploit them to bypass a financial institution’s defenses. However, many companies fail to have full visibility into their supply chains and have not conducted comprehensive risk assessments. As a result, they may not be aware of vulnerabilities in their third-party networks or the potential impact these vulnerabilities may have on their own systems and data.
The software development life cycle (SDLC) and change management processes also pose significant risks for financial institutions. The SDLC encompasses various stages, including planning, design, coding, testing, integration, and maintenance. Weaknesses in any of these phases can lead to security breaches or system failures. Similarly, change management ensures that software changes are implemented in a controlled manner to prevent unexpected outcomes. Any deviation from established change management processes can result in risks such as software instability, data loss, or non-compliance with regulatory requirements. Therefore, it is crucial for financial institutions to prioritize the quality and stability of their software applications by addressing risks in the SDLC and change management processes.
Identity and access management (IAM) is another critical area where financial institutions must manage risks effectively. IAM ensures the security of an organization’s systems and data by controlling who has access to sensitive information. However, there are specific areas within IAM that can result in matters requiring attention (MRAs). For instance, failure to regularly review and update access controls can lead to unauthorized access to sensitive data. Additionally, the lack of segregation of duties can result in conflicts of interest and potential fraud. Weak password policies, inadequate authentication mechanisms, improper management of privileges, and insufficient monitoring and logging are also significant risk areas that can lead to regulatory MRAs. Financial institutions must design their IAM systems with a strong focus on risk management, compliance, and governance to mitigate these potential MRA-related issues.
In conclusion, financial institutions must not overlook the various areas where risks can emerge. From mergers and acquisitions to third-party relationships, software development, and identity and access management, these potential risks can have significant consequences if not effectively addressed. By conducting thorough risk assessments and implementing robust risk management strategies, financial institutions can mitigate vulnerabilities and protect themselves and their stakeholders from potential threats.