Fed’s annual report: cybersecurity risk management & emerging threats

Privacy, Cyber Risk & Data Security Federal Issues Bank Regulatory Risk Management Examination Federal Reserve

On August 1, the Fed released its 2023 Cybersecurity and Financial System Resilience Report. Required annually by the Consolidated Appropriations Act, 2021, the report describes the measures the Fed has taken to strengthen cybersecurity within the financial services sector and its supervision and regulation of financial institutions and service providers across the past year. The report details the Fed’s activities in the space, including issuing regulations and guidance for supervised institutions, examining and monitoring supervised institutions’ risk management, and collecting data on relevant cybersecurity incidents. Recent actions highlighted in the report include the publication of an updated Cybersecurity Resource Guide for Financial Institutions, a proposal to update the operational risk management requirements in Regulation HH for systematically important financial market utilities, and final joint guidance issued in conjunction with the FDIC and OCC regarding banking organizations’ risk management of third-party relationships. The Fed also describes the steps it is taking to protect its own operations and assets from cybersecurity threats.

With respect to supervisory activities, the Fed notes that it “has observed improvement in cybersecurity practices over the past several years resulting from supervised institutions’ efforts to address supervisory findings as well as proactive steps taken by the institutions.” The report notes that the Fed is taking measures to address OIG recommendations relating to the effectiveness of its cybersecurity incident response process, including updating the cybersecurity incident response process’s mission and governance structure and enhancing guidance and training. The report describes the Fed’s close coordination with other participants in the global financial system in addressing cybersecurity risk, including domestic and international agencies, governance bodies, financial regulators, and industry.

Finally, the report describes current and emerging threats to the financial system, including (i) geopolitical tensions and accompanying cyberattacks; (ii) cyber-criminal activity involving ransomware as a service, targeting of authentication mechanism weaknesses, and collaboration among cyberthreat actors; (iii) increasing potential of a supply chain or third-party attack; (iv) cyber risks associated with third-party providers; (v) insider threats; and (vi) other emerging technology-related threats, such as risks inherent to machine learning and quantum computing capabilities.