Cyber attacks may bring about next 'systemic shock' to hit banks, says KPMG

KPMG said that initiatives aimed at preventing a repeat of the banking crisis that first hit in 2007 may not be sufficient to prevent the financial system coming into difficult. It said that an "as yet unforeseen event or network events such as a massive payment outage or a new breed of cyber attack" may be bring about the next "systemic shock" to the banking industry.

In a new report seen by Out-Law.com that summarises the half yearly financial results of Barclays, HSCB, Lloyds Banking Group, RBS and Standard Chartered, KPMG sought to predict what the next three to five years may hold for the UK banking sector.

According to the report, whilst there have been initiatives to improve the sustainability of banks in wake of the financial crisis, the industry may be focusing too heavily on "fighting the last war" and not be aware of other threats to financial stability that could arise. Such threats may stem from cyber attacks, KPMG said.

"Will the next systemic shock spring from a liquidity crunch or inherent capital weakness?" KPMG said. "Or is it more likely to come from an as yet unforeseen event or network of events such as a massive payment outage or a new breed of cyber attack?"

"Traditionally, banks have been leaders in IT security, at the cutting edge of innovation, but their ability to combat future security threats is increasingly debatable," it added. "After years of improvement, UK banks suffered a 12% increase in online account fraud last year. Furthermore, the motivation for cyber assaults is shifting, from financial crime to political and ideological attacks, with the number of state-sponsored hacking and ‘hacktivist’ revenge incidents growing."

According to a recent survey by Lloyds, cyber risk is now considered by global business leaders to be the number three overall risk facing organisations.

"Six major US banking institutions suffered website outages in 2012," KPMG said in a statement accompanying their report. "Their UK counterparts have escaped similar mass disruption assaults so far – but they remain under pressure to ensure their critical systems are robust enough to cope with a failure."