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What keeps the Bank of Canada up at night: Cyberattacks

 Apr 4, 2018 1:00 PM

By: Ian Mucignat

There are plenty of recent headlines in the news about Russian hackers, Chinese hackers, AggregateIQ, election tampering etc. Furthermore, a new cold war seems to be developing between Russia and the West, with the attempted assassination of a double agent using a military grade nerve agent. Russian diplomats are being expelled in Canada and the West. Russia is doing likewise.

On March 22nd, the Senior Deputy Governor of the Bank of Canada, Carolyn Wilkins, gave a speech at the Rotman School of Management. She was speaking at a conference, a speech called, “Are We Ready for the Next Financial Crisis?” In her speech, she told the audience,

“A couple of areas worry me right now, and they need concerted attention. Both relate to interconnectedness and trust in the system. My first concern is …: cyber risk.”

Traditionally, when we think of Cyberattacks, we tend to think of some nerdy guy hacking into a computer for fun. Think Matthew Broderick in WarGames. A kid hacks into a system to have fun and ends up raising the def-con level. Other movies might show a kid hacking into his school system to change his grade from C to B+.

However, today’s cyber-attacks are different. They are being led by nation-states, organized groups, organizations, and are using increasingly sophisticated methods to steal or undermine. These cyberattacks can have a specific purpose to destroy the infrastructure of a nation. The battlefield might be behind a computer.

When you consider our use of and reliance on technology, it’s not surprising. I think my kids have a conniption fit when the internet goes down and the iPads aren’t streaming. On a larger scale, Banks and the financial system rely on the operational efficiencies gained from connected computer systems.

Imagine if the cloud got smoked. Wait, what is the cloud, anyway? Okay, forget that thought.

Going back to the Bank of Canada, Wilkins said the risk is heightened because “…of an increasing number of points of access to core parts of the financial system and the growing sophistication of those launching cyber-attacks.” Furthermore, “The systems that underpin all financial transactions in our economy are highly interconnected, and a cyber-attack on one could quickly propagate and cause major disruptions.”

Two years ago, it was reported that Chinese hackers stole $100 million from the Bangladesh central bank.

In 2017, the Ukraine faced a series of powerful cyberattacks. The attack affected many Ukrainian organizations, banks, ministries, newspapers, and electricity companies. The attack caused Chernobyl’s radiation monitoring system to go offline! The launch of the attack came on the eve of Ukraine’s public holiday to celebrate their constitution. Analysts today see the cyberattack as an attempt to cripple the government, and many point to Russia as the source of the attack.

Financial systems may be the hardest hit in years to come by cyberterrorism. Money is constantly being exchanged, traded, and recorded by institutions. We don’t think of these systems often, but we enjoy their benefits from online banking, POS debit transactions, credit card payment systems, and interbank wire transfers. All this happens so smoothly behind the scenes.

However, a well-coordinated attack on our financial systems might cause us to lose our belief in our system. It could be an attack on our personal information or theft of our assets. Imagine if it was reported that Royal Bank’s login and password information for all its clients were compromised?! If the response is not handled properly, Canadians lose faith in the financial system.

Final Say

A financial crisis causes problems, bail outs, bankruptcies, job losses etc. It happens quickly, and it hits hard. A cyberattack causing a financial crisis will be no exception. Should this happen on a large scale, we’ll see the economy take a major hit, and a recession will likely follow. A recession brings in a period of lower interest rates to stimulate. Lower rates will bring lower mortgage rates.

The fact that the Bank of Canada is worried about it and having trouble sleeping at night is good news for me. The fact that they are concerned and taking action is helping me sleep better.


About the Author:

Ian Mucignat, CFA, is an independent mortgage agent at TMG The Mortgage Group. He graduated from Wilfrid Laurier University with a Bachelor of Business Administration, minoring in Economics, and is a CFA Charterholder. Ian has worked in the mortgage industry since 2000 at lenders, banks, and brokerages. If you are purchasing, renewing, or refinancing your mortgage, don’t hesitate to contact Ian directly for a free consultation.



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