Financial Digital Disruptors and Cyber-Security Risks: Paired and Systemic

Abstract

The scale and intensity of digital financial criminality has become more apparent and audacious over the past fifteen years. To counteract this escalating threat, financial technology (FinTech) and monetary and financial institutions (MFI) have attempted to upgrade their internal technological infrastructures to mitigate the risk of a catastrophic technological collapse. However, these attempts have been hampered through the financial stresses generated from the recent international banking crises. Significant contagion channels in the aftermath of cybercriminal events have also been recently uncovered, indicating that a single major event may generate sectoral and industry-wide volatility spillovers. As the skillset and variety of tactics used by cybercriminals develops further in an environment of stagnating and underfunded defensive technological structures, the probability of a devastating hacking event increases, along with the necessity for regulatory intervention. This paper explores and discusses the range of threats and consequences emanating from financial digital disruptors through cybercrime and potential avenues that may be utilised to counteract such risk.

Keywords: Cyber security, Cyber insurance, risk, financial risk, banking, monetary and financial institutions, FinTech, blockchain, digital security, cyber crime, systemic risk, contagion, financial markets

JEL Classification: E44, F36, F65, G01, G15, G18, G21, G22, G23, G28, G32, L86, O33