The asset management sector, a critical component of the financial industry, is facing a pressing challenge in the form of cybersecurity. During the first quarter of 2023, the number of weekly cyberattacks witnessed a 7% increase when compared to the corresponding period in the previous year. This rise in cyberattacks has significant implications for asset management firms, as they face heightened risks to the security and confidentiality of sensitive data.

The allure of monetary profit and the opportunity to access sensitive information make the financial industry a prime target for cybercriminals. As such, pinpointing potential cybersecurity weaknesses and threats is a critical undertaking for all financial institutions.

Evolving Cyberthreats in Asset Management

As the fintech industry progresses and innovates, it simultaneously faces escalating challenges from advanced cyberthreats. Notably, the industry has seen several high-profile incidents that serve as stark reminders of the significant implications and potential damage that cyberthreats pose.

● On April 17, 2022, the DeFi platform Beanstalk Farms suffered a significant financial blow when cybercriminals made off with $180 million in a cryptocurrency scam. The perpetrators cleverly borrowed a sizable sum, which enabled them to gain enough voting authority to modify governance rules and drain Beanstalk’s entire reserves. In the aftermath, each Bean’s value nosedived to almost nothing before gradually recovering to approximately a dollar.

● In another incident on April 1, 2022, it was discovered that North Korean cybercriminal gang The Lazarus Group deployed Trojanized decentralized finance applications to disseminate malware as part of their most recent spearphishing operation. This malicious software acted as a comprehensive backdoor, granting the attackers control over the compromised system. The group seized $625 million worth of cryptocurrency from the Sky Mavis-owned Ronin Network.

● On January 17, 2022, Multichain, a service that facilitates cross-chain token exchanges, lost approximately $1.4 million due to cybercriminals exploiting a vulnerability in its blockchain system. Unbelievably, one of the perpetrators is presently in negotiations with the affected parties to return 80% of the illicitly acquired funds, intending to keep the remaining 20% as a reward.

The escalation of cybersecurity dangers and incidents plaguing the financial industry is due, in part, to an increasingly hostile cyberthreat environment. Specifically, the rise in advanced and harmful state-sponsored cyberattacks aimed at financial institutions is alarming. Moreover, the insufficient and belated adoption of updated technologies by asset management organizations has inadvertently given cybercriminals an advantage, enabling them to exploit advanced technologies for their nefarious activities. This predicament calls for fool-proof, cutting-edge solutions to effectively counter these intensifying threats well in advance.

Key Vulnerability Areas in Fintech for Cyberattacks

Similar to any other sector, the asset management industry grapples with potential threats of substantial magnitude to its vulnerabilities.

From October 2021 to September 2022, malware was the most prevalent form of cyberattack against financial and insurance institutions. The attack vector targeted approximately 40% of global organizations. With 23% of organizations experiencing network and application anomalies, network and application anomalies ranked second, followed by system anomalies with 20%.

Let’s explore the most vulnerable areas in fintech that pose current challenges.

Data Storage and Transmission: The storage and transmission of sensitive data, including personal information and financial transactions, are often prime targets for cyberattacks. Hackers often attempt to exploit vulnerabilities in these areas to steal data or disrupt services.

APIs: Many fintech companies rely on APIs to integrate services with other providers. APIs can be vulnerable to attacks, especially if they’re not properly secured. Attackers can exploit vulnerabilities in APIs to gain unauthorized access to sensitive data.

Payment Systems: Online payment systems are a major target due to the immediate financial gain potential for cybercriminals. They might attempt to intercept transactions, manipulate account balances, or create fraudulent transactions.

Mobile Apps: Many fintech services are delivered through mobile apps, which can be vulnerable to various types of attacks, including data leakage, poor encryption or malware.

Cloud Services: As many fintech companies utilize cloud-based services for storage and processing, any vulnerability in the security of the cloud platform can expose fintech’s data to potential cyberattacks.

Third-Party Vendors and Supply Chain: Fintechs often rely on third-party vendors for various services. If these vendors have poor security, they can provide a backdoor for cybercriminals to access fintech’s systems.

Machine Learning Systems: Machine learning algorithms used for fraud detection or risk analysis can be targeted by poisoning attacks, where the attacker attempts to skew the algorithm’s behavior by feeding it malicious data.

User Interfaces: User-facing interfaces, such as websites and applications, are common targets for attacks like phishing or SQL injection aimed at stealing user credentials or injecting malicious code.

Identity and Access Management: If a cybercriminal can gain access to legitimate user credentials, they can impersonate that user and conduct fraudulent activities. Thus, identity and access management systems are often targeted.

Additionally, risks associated with third-party vendors and user interfaces further compound the challenges. However, identifying the most beneficial technologies that aid organizations in handling escalating fraud threats can be pivotal in the successful deployment of new anti-fraud technologies.

Future Trends and Emerging Technologies

Asset management firms are poised to embrace emerging technologies as they navigate the evolving landscape of cyberthreats. Among these technologies, AI and ML hold significant promise for detecting and preventing cyberthreats in real-time. Using AI and ML algorithms, asset managers can enhance their ability to identify and respond to emerging threats swiftly.

Based on a study by IBM, organizations that have fully embraced security AI and automation witnessed a remarkable 65.2% reduction in the overall cost of data breaches. This significant reduction translated into substantial savings of $3.05 million for these organizations, surpassing the cost savings achieved by those who did not adopt such measures.

In the future, asset management firms that embrace emerging technologies like AI and ML will gain a competitive edge. These technologies have the potential to revolutionize the cybersecurity landscape, providing predictive and adaptive security measures that stay ahead of evolving threats. By investing in research and development, fostering innovation, and forming strategic partnerships with technology providers, asset managers can position themselves as leaders in cybersecurity, ensuring robust protection for their clients’ data.

Regulatory Landscape and Compliance Considerations

Asset management companies function within a regulatory framework that mandates rigorous standards for cybersecurity compliance. Rules such as those set by the General Data Protection Regulation (GDPR) and the Securities and Exchange Commission (SEC) impose specific responsibilities on firms to protect sensitive information and uphold solid cybersecurity protocols. Compliance with these regulations is not only a legal imperative but also crucial for upholding data confidentiality, defending against cyber intrusions and maintaining the confidence of clients and shareholders.

Beyond compliance adherence and the implementation of industry best practices, asset management firms need to harness the latest technologies and experienced talent to perpetually enhance their systems and stay at the forefront of potential threats. Furthermore, gaining insights into the technologies and strategies employed by industry counterparts can assist organizations in discerning industry trends and inform their investments in anti-fraud technology.

Final Thoughts

In conclusion, the asset management industry navigates an intricate cybersecurity landscape marked by persistent and evolving threats. These encompass the rise in cyberattacks, high-profile incidents and an increasingly hostile threat environment, underscoring the vital role of proactive and advanced measures. It’s crucial that organizations stay vigilant and adapt by leveraging emerging technologies such as AI and ML, ensuring regulatory compliance and fostering an environment of constant learning and innovation. By recognizing the various points of vulnerability and strategically responding to them, asset management firms can bolster their defenses, safeguard sensitive data and ensure the trust of their clients and stakeholders.