Navigating Cybersecurity: An Urgent Call for MRM in Banks

The digital world has, undeniably, intertwined itself with the financial sector, emphasizing the stark need for fortified cybersecurity frameworks in banking operations. In recent years, high-profile cyber-attacks, such as the March 2021 attack on a European regulatory agency and a massive data breach affecting a large American trading platform, underscore the evolving and pervasive threats to institutions. These critical incidents triggered regulatory bodies like the US Department of Homeland Security and the European Central Bank to issue directives for financial institutions to amplify their cybersecurity measures.

Enhancing the Cybersecurity Landscape in Banking with Model Risk Management (MRM)

Amid the increasing frequency and sophistication of cyber-attacks, the concept of Model Risk Management (MRM) emerges as a focal point in mitigating cyber threats, particularly within the banking sector. MRM revolves around monitoring and managing risks that can arise from decisions based on possibly incorrect or misused models. A crucial step in establishing MRM is to identify and include analytical tools in the model inventory, which are being particularly embraced by banks in North America, as evidenced by a 2021 McKinsey survey highlighting that 70% of respondent banks in the region aim to include cyber risk model types in MRM governance.

Given that most cyber solutions employ advanced analytics and machine learning techniques, they meet the criteria of a model by institutions in North America and are thus included in the inventory.

The Multifaceted Role of Cybersecurity Solutions in Banking

Cybersecurity endeavors in banks predominantly cater to three pivotal areas:

  1. Safeguarding Web and Mobile Applications: Financial institutions leverage a gamut of solutions, ranging from machine learning to rule-based approaches, to ensure the safeguarding of their web and mobile applications against intrusion and other potential threats.
  2. Identifying Risk Exposure: The iterative process to quantify potential economic impacts stemming from cyber risks involves creating a qualitative catalog of cyber risk areas, simulating dollar value risk across various scenarios, designing controls to mitigate risk, and perpetually reviewing the risk environment to discern emerging threats.
  3. Reviewing Existing Cyber Defenses: To contend with the fluctuating nature of cybersecurity, banks periodically examine their current cybersecurity defenses using various tools and solutions, as well as establish a security incident process to explore and respond to potential cyber-attacks.

Identifying and Navigating through Model Risks in Cybersecurity Solutions

The integration of cyber solutions within a bank’s MRM framework can illuminate unseen risks, thereby enabling MRM to pinpoint and potentially alleviate these risks. Some risk areas introduced by cyber solutions and implications for the model risk management of cybersecurity models include:

  • Methodology Obsolescence: Adapting to evolving threats as attackers seek innovative approaches or social engineering tactics.
  • High-Speed and Sudden Attack: Anticipating and identifying threats before they materialize into attacks.
  • High Stakes and Extended Downtime: Ensuring cyber models have robust governance and controls to prevent significant financial impacts, data leaks, or reputation damage.
  • Vendor Risk: Engaging effectively with vendors during the implementation of a cyber solution, ensuring its successful integration and functionality.
  • Infrastructure Challenges: Undertaking effective penetration testing to ascertain that solutions are flawlessly integrated and operational within the application suite.

Considerations for MRM of Cybersecurity Solutions

Recognizing the risks propels the criticality of MRM and its application to cybersecurity into sharp focus. Key considerations for effectively managing cyber solution risks include model inventory management, materiality assessment, engaging with vendors, model monitoring, and independent validation, to name a few.

The Inception of a Robust MRM Framework in Banking

Embarking on the MRM journey necessitates that banks establish a coherent and effective approach promptly to manage risks and institute controls. A potential pathway for organizations may involve:

  • Organizing awareness workshops.
  • Developing team capabilities.
  • Reviewing the model landscape and identifying inventory.
  • Customizing MRM standards.
  • Performing independent validation.
  • Measuring and internally reporting model risk.

In a cyber-fraught era, an expeditious adoption and rigorous implementation of cybersecurity MRM are paramount, assuring an aligned, collective stand against potential threats, thereby safeguarding both the financial institution and its clientele from the perils of cyber-attacks. Now, more than ever, is the moment to embed cybersecurity MRM to ensure a holistic, unified front to preclude threat actors from initiating a costly assault.

Like this article?

Share on Facebook
Share on LinkedIn
Share on XING

Talk to an Expert

"*" indicates required fields

Are you looking for support?

If you're looking for product support, please login to our support center by clicking here.

First, what's your name?*
This field is for validation purposes and should be left unchanged.

Submit a Pricing Request

"*" indicates required fields

First, what's your name?*
This field is for validation purposes and should be left unchanged.

Submit an RFP Request

"*" indicates required fields

First, what's your name?*
Which solution does your RFP require a response on?*
Drop files here or
Accepted file types: pdf, doc, docx, Max. file size: 1 MB, Max. files: 4.
    This field is for validation purposes and should be left unchanged.

    GDPR Cookie Consent with Real Cookie Banner Skip to content