EU Report: DLT Could Increase Cyber Risks for Financial Institutions

The proliferation of new technologies such as blockchain poses an increasing risk to Europe’s financial system, according to a new report.

The risk report, published by the Joint Committee of the European Supervisory Authorities last week, examines the threats facing the EU's financial system from a number of factors including the "increasing interconnectedness" brought about by technology.

The Joint Committee, formed in early 2011, includes representatives from the bloc’s key regulators: the European Securities and Markets Authority (ESMA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Banking Authority (EBA).

One area of concern cited in the report is the ever-growing cost burden of ensuring cybersecurity, while the growth of fintech – including distributed ledger tech – is considered a long-term risk for firms that provide financial infrastructure, such as central securities depositories.

From the report:

Though the report doesn’t specify what such "cyber threats" might be, a study published by ESMA in February points to some possibilities. According to the research, potential vulnerabilities include key management and access to hardware systems that might make up a future DLT system.

Despite the concerns, the authority said at the time it would be “premature” to explore regulations specific to the tech.

The latest report does, however, explain more generally that some of the risks stem from a lack of institutional knowledge and poor IT management, and it goes on to recommend that financial institutions move to address these concerns.

"Inadequate IT governance can contribute to poor operational management practices and inadequate recovery and resilience solutions," the report argues. "Supervisors should consider to further assess the resilience of financial institutions to cyber security and ICT risks."

EU Commission image via Shutterstock