Preparing for cybersecurity risks in wealth management

13 Feb Preparing for cybersecurity risks in wealth management

Wealth management professionals need a robust cybersecurity strategy to counter the growing threat of cyber-attacks. The advent of online services and technologies has led to an increased worry about highly skilled hackers and internal security threats. With practical measures including firewalls, VPNs, and cybersecurity, wealth management firms can build a reputation for leading protection measures.

When people trust you to manage their financial information, you are legally required to do so responsibly. Like other industries, wealth management requires great care when working with sensitive information. This is a challenge in itself as more services migrate to online platforms, causing an uptick in cyber-attacks.

Wealth management professionals must constantly refine their information security solutions. They must adopt new technologies, tools, and solutions, and learn more about their adversaries. Wealth advisors need to know about various attacks, regulations to follow, and available tools. These are fundamental for a rock-solid cybersecurity strategy.

The arms race happening in your information systems

The risk posed by hackers has significantly escalated in recent years. Many services are now online. Cybercriminals use new technologies like PowerShell, Cobalt Strike, and Remote Desktop Protocol. These tools can breach financial institutions’ defenses and load malware onto their information systems.

A 2022 report by the World Economic Forum listed cybersecurity as a top 5 issue for financial services. The report provides frightening statistics about the increased frequency of attacks. Malware attacks rose 358% in 2020, and ransomware 435%.

Cybercrimes are also increasingly common, which makes their rise in magnitude all the more worrying. Ransomware cemented its position as the leading cybersecurity threat faced by organisations with increased momentum and impact throughout 2021.

Moreover, AI and cryptocurrency make it easier for people with malicious intent. AI can automate intrusions, as is already the case with automated phishing attacks. Collecting payment in cryptocurrency is another way criminals can cover their tracks.

Canadian companies face increasing state-sponsored cyber-attacks that pose a significant threat to their integrity and information systems. The Solar Wind Orion attack and other cyber-attacks in 2020 highlight the need to improve defenses against cybercriminals.

Why securing your clients’ sensitive information is critical

Not following cybersecurity best practices puts firms at risk of losing valuable data and money through cyber-attacks. Notably, governmental regulatory agencies impose stringent cybersecurity norms on wealth management firms. They ensure that advisory firms comply with laws such as the Personal Information Protection and Electronic Documents Act (Canada).

Failure to comply can result in significant fines. The U.S. Securities and Exchange Commission (SEC) and the Canadian Securities Administrators (CSA) are constantly updating their cybersecurity guidelines for protecting systems from cybercriminals.

When data breaches do occur, firms will feel only some effects immediately. According to a study led by Oxford Economics, “Once a firm’s information security breach is uncovered, there is a permanent 2% drop in its stock valuation.” To recuperate from this same event, a firm must spend a lot on communications fees, lawyers’ fees, penalties, and more.

Keeping up with regulations and even going beyond regulatory minimums is essential for those who fall victim to cybercriminals. A company can stand out and gain advantages over competitors by obtaining certification from a cybersecurity organization. SOC 2 accreditation assures customers (especially tech-savvy and wealthy individuals) that your information systems and services are trustworthy.

Security risk management: Knowing your adversary

Hacker groups are often the most common types of cyber threats. However, the biggest threat to a wealth management firm often comes directly from within. According to research led by IBM, insiders account for 60% of cybersecurity issues. Since employees have unique sensitive information, it is much easier for them to commit significant faults.

Focusing on external liabilities might be the default, and yes, it is essential. Still, external agents are a lot less controllable than internal ones.

Wealth management professionals can implement a range of solutions to reduce the chances of insider cybersecurity issues. Implementing security measures such as limiting remote data access, password protection, and using multi-factor authentication is recommended. This will ensure employees conduct themselves responsibly around sensitive information.

Simulation training sessions are also necessary to minimize insider liabilities by ensuring that all employees follow appropriate protocols. Firms can also turn to third-party vendors for insider threat detection with companies like DoControl, which uses diverse technologies to detect and prevent internal threats.

How to protect against cybersecurity threats

Wealth management professionals can follow two main strategies to implement a rock-solid cybersecurity program.

Hiring a skilled third party for secure systems is a great choice for firms needing fast and dependable security risk management.

The second strategy consists of establishing an internal security team. This would include cybersecurity experts for risk assessment and cybersecurity risk correction. Firms should ideally want to keep their cybersecurity measures internal.

Wealth management firms can implement many practical data security postures. Assuring your firm has appropriate firewalls, VPNs, and antiviruses for computer systems is crucial for protection from external agents. This is the cue for those who still need to start using encryption services.

Information storage is another often overlooked area to consider. For instance, storing sensitive data in the cloud, as long as it is well-secured, can be a great option.

Finally, firms should develop cyber threat intelligence. This includes backup and business continuity plans along with a disaster recovery plan. To ensure their strategy’s efficiency, personnel should regularly conduct penetration testing and audits of their cyber defenses.

However, having excellent cybersecurity measures isn’t always sufficient. To ensure flawless security, your consultants and other suppliers must follow equally high cyber etiquette to protect your firm from external cyber risks.

These requirements can seem overwhelming for wealth management firms unfamiliar with sophisticated information systems, especially given that governmental norms need to be followed to a T. Needless to say, the stakes are high.

Luckily, wealth management professionals don’t need to go it alone when it comes to cybersecurity. WealthTechs can offer professionals the assistance they need to beef up their security in cyberspace.

Indeed, with the help of the right financial technology tools, wealth management professionals can offer online services allowing for the encryption and sorting of confidential information automatically by algorithms, limiting the number of people that access client data. Digital services also allow for the tracking of personnel accessing data. Wealth management firms can also implement robo-advisors and AI to supplement traditional advising, reducing possible points of failure in the advising process.

While the above recommendations merely scratch the surface of cybersecurity, wealth management professionals should carefully consider their options to maximize their clients’ security in an increasingly hostile digital environment. With the right tools, solutions, and strategies, firms can discern their business operations by building a solid reputation offering first-in-class confidentiality integrity.