How Banks Safeguard Your Finances Against Cyber Threats and Fraud?

May 22, 2023

8

min read

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ou entrust your hard-earned money to the bank, considering it the safest place to store your wealth. However, it's important to note that the bank isn't entirely risk-free. While money heists are now rare in banks, a new and more insidious threat looms large in the current digital landscape - cybersecurity threats!

As we embrace the transition to a digital economy, it has made it easier for thieves and fraudsters to target your money. They no longer need the courage to plan a heist; instead, they only need hacking skills, vulnerable systems, and innocent customers.

Now, the question arises: How do banks safeguard your finances from these cyber threats and fraudulent activities? Moreover, what steps should you take to protect your assets? Let's delve into the details.

Why is Cybersecurity Important for Banks?

The New York Federal Reserve stated that financial firms are targeted by cyber attacks 300 times more often than other industries. This is just one example of why cybersecurity is vital for banks. Here are a few more:

Protection of Financial Assets

Banks handle massive amounts of money and valuable financial assets of their customers. Thus, robust cybersecurity measures are crucial to protect against unauthorized access, theft, and fraudulent activities that could compromise these assets.

Data Privacy and Compliance

Apart from financial assets, the bank also handles sensitive customer information, including personal and financial data. Cybersecurity is necessary to ensure this data's privacy and confidentiality and comply with regulations and industry standards such as GDPR (General Data Protection Regulation) and PCI DSS (Payment Card Industry Data Security Standard).

Uninterrupted Operations

In today's digital age, banks are core to any financial transactions. Thus, they must be operational round the clock, catering to their customers' needs. However, cyberattacks such as Distributed Denial-of-Service (DDoS) or ransomware can halt banking operations.

Just imagine the chaos that would ensue if online banking services were to go down, ATM networks crashed, or wire transfers were disrupted. Such disruptions are not only inconvenient but can also have severe financial consequences for both the bank and its customers.

Trust and Reputation

Bank thrives on the foundation of customer trust and confidence. However, just one cybersecurity breach can significantly undermine this trust and confidence, causing substantial damage to its reputation. Therefore, banks must implement robust cybersecurity measures that showcase their dedication to safeguarding customer data and finances.

Prevention of Financial Crimes

Cybersecurity is vital in combating financial crimes such as identity theft, money laundering, and fraud. By implementing robust security systems, banks can detect and prevent unauthorized access, fraudulent transactions, and other illegal activities that could harm customers and the overall financial system.

What Are the Types of Cyber Threats and Frauds Faced by Banks?

Banks must face a wide range of cyber threats that continually evolve as technology advances. Here are some prominent cyber threats and frauds that banks have to deal with:

Phishing

Cybercriminals use deceptive emails or messages to trick bank customers or employees into revealing sensitive information like login credentials, account numbers, or personal details. It's like a digital way of fishing, with the attacker using their bait, hoping for you to take a bite and reveal the sensitive information.

Trojans

Remember the story of a Trojan horse in Greek mythology? In cybersecurity, trojans are sneaky and deceptive software that pretend to be legitimate programs. They are often spread through deceptive emails or disguised as software downloads. Once inside, trojans can cause damage to online banking activities and put sensitive information at risk.

Distributed Denial of Service (DDoS) Attacks

In a DDoS attack, cybercriminals flood a bank's systems with overwhelming traffic, causing disruptions and making online services unavailable to customers.

Malware and Ransomware Attacks

Ransomware on a Screen — Source: Freepik

Banks can fall victim to malware such as viruses, worms or become targets of ransomware attacks. These attacks are often initiated through phishing emails, compromised websites, or software vulnerabilities and can lead to a data breach, disrupts operations, and lock the entire system.

ATM Skimming

The criminals install spy cams on ATMs to capture customers' card information and PINs. The stolen data is then used for fraudulent activities.

Business Email Compromise (BEC)

BEC attacks target banks and their customers by impersonating high-level executives or trusted vendors via email. The goal is to trick employees or customers into making unauthorized payments or revealing sensitive information.

Insider Threat

A real case involves a banker who stole 0.1 cents from each customer's account, accumulating wealth and becoming a millionaire. This incident highlights the vulnerability of banks to insider threats. The bank employees, intentionally or unintentionally, can misuse their access privileges for fraudulent activities, unauthorized data access, theft, or system sabotage. Thus, banks must implement strong security measures to mitigate these risks and safeguard operations.

How Banks Protect Themselves Against Cyber Threats and Frauds?

Banks employ multiple strategies and technologies to protect against potential cyber-attacks. Here are a few of them:

Firewalls and Intrusion Detection/Prevention Systems (IDPS)

Policing Access to Banking Application — Source: Freepik

Banks deploy robust firewalls and IDPS tools to monitor and control incoming and outgoing network traffic. They act as a barrier, promptly identifying and filtering out potentially suspicious, malicious, or unauthorized connections. Think of them as security guards stationed at the entrance of your banking system, diligently checking whether individuals are authorized customers or not.

Data Encryption

Banks employ robust encryption protocols to protect sensitive data. Encryption acts as a protective shield, much like an unbreakable code, ensuring that the data remains unreadable and unusable to unauthorized individuals even if intercepted.

Secure Socket Layer/Transport Layer Security (SSL/TLS)

Banks use SSL/TLS protocols to secure communications between customers' devices and online banking systems. This ensures data privacy and integrity during transmission over a network, such as the Internet, and enhances the security of online banking transactions.

Multi-factor Authentication (MFA)

To enhance account security, banks often implement MFA, requiring users to provide multiple verification forms. It combines something the user knows (password, security questions) with something the user possesses ( one-time code, biometrics), adding an extra layer of security to protect your data from hackers and cybercriminals.

Regular Security Assessments

Banks can identify vulnerabilities in their systems by conducting frequent security assessments and penetration testing. This proactive approach allows them to address weaknesses before attackers can exploit them.

Incident Response Planning

Banks can address cyber attacks swiftly and effectively by developing comprehensive incident response plans. These plans outline the steps during a breach, including communication protocols, containment strategies, and recovery procedures.

Employee Training and Awareness

Training a Group of Employees — Source: Freepik

Banks prioritize cybersecurity training for their employees to ensure they understand best practices, recognize phishing attempts, and strictly adhere to security protocols. Awareness programs help reduce the risk of insider threats and human error.

Vendor Risk Management

Banks assess and manage the security risks associated with third-party vendors and service providers. They establish stringent security requirements, conduct audits, and monitor compliance to ensure that vendors meet security standards.

Are Some Banks More Secure Than Others?

In terms of cybersecurity, banks vary in their level of security measures. It can vary based on various factors, including the size of the bank, available resources, technological infrastructure, regulatory requirements, and the overall focus on cybersecurity.

Generally, larger and established banks often have more extensive resources and dedicated cybersecurity teams, allowing them to invest in advanced security technologies and implement comprehensive security measures. These banks may have more robust firewalls, encryption protocols, intrusion detection systems, and incident response capabilities.

In addition, neobanks, which operate solely in the digital domain, prioritize high-level cybersecurity systems. As fully digitalized banks, they are highly vulnerable to cyberattacks and allocate significant resources to improve security measures.

How can Banks Notify and Protect Against Fraud Detection?

Banks should have effective measures to promptly notify customers of fraud detection. Here are some essential steps and methods they can employ:

Real-Time Transaction Alerts

Banks can set automated alerts to notify customers of suspicious transactions or activities. These alerts can be sent via various channels, including SMS, email, or push notifications through mobile banking apps.

Two-Way Communication Channels

Banks can provide customers with dedicated communication channels to report suspected fraud or unauthorized transactions. This could be a dedicated phone line, email address, or an online form. By offering clear and easily accessible reporting mechanisms, customers can quickly contact the bank to report any concerns.

24/7 Customer Support

Banks often maintain 24/7 customer support services to assist customers with fraud-related issues. This ensures that customers can reach out to the bank at any time, even outside regular business hours, to report suspicious activities, freeze their accounts, or seek guidance on proceeding in case of fraud.

Fraud Resolution Assistance

Banks extend support to customers in resolving fraud-related matters. This may involve guiding the necessary steps, assisting with disputing unauthorized charges, facilitating card replacement, or coordinating with law enforcement agencies, if required.

Multi-Factor Authentication

To ensure secure communication, banks can implement multi-factor authentication (MFA) methods when contacting customers regarding fraud detection. This adds an extra layer of verification to confirm the customer's identity before discussing sensitive account information.

What are the Essential Banking Regulations and Obligations for Cybersecurity?

Banks are subject to various regulations and compliance requirements to maintain cybersecurity. Here are some of the key regulations that banks commonly have to follow:

General Data Protection Regulation (GDPR): Requires banks to protect customer data and report data breaches.
NYDFS Cybersecurity Regulation: Mandates cybersecurity programs and controls for financial institutions in New York State.
Cybersecurity Information Sharing Act (CISA): Encourages voluntary sharing of cybersecurity threat information between government and private sector entities, including banks, to improve cybersecurity defenses.
Sarbanes-Oxley (SOX): Ensures best security practices for avoiding fraudulent financial transactions through a system of internal checks.
Payment Card Industry Data Security Standards (PCI DSS): Standard for securing payment card data during processing.
Gramm–Leach–Bliley Act (GLBA): Requires banks to protect customer data and honestly disclose all data-sharing practices with customers.

How can you protect yourself from cyber threats and fraud?

The bank plays a crucial role in protecting your finances from cyber threats and fraud, but you must also take steps. You can take these steps to improve your cybersecurity:

Computer Fraud Between Two Devices — Source: Freepik

Create complex passwords for each online account and avoid reusing them. You can also consider using a password manager to generate and store passwords.

Activate 2FA whenever possible to add an extra layer of security to your accounts. While it may initially appear a hassle, it saves you from potential troubles related to data fraud and threats.

Regularly update your devices, operating systems, and applications to patch vulnerabilities.

Stay vigilant against suspicious emails, messages, or calls requesting personal information. Always verify requests independently and avoid clicking on unfamiliar links or downloading attachments.

Use encrypted and secure Wi-Fi networks, especially for sensitive activities, and avoid using public or unsecured networks.

Install reputable antivirus and anti-malware software, keeping it updated and performing regular scans.

Beware of impersonation attempts or requests for sensitive information, and avoid disclosing personal details to unverified sources.

Back up essential files locally and in the cloud using secure and encrypted solutions.

Download software and files from trusted sources, and verify URLs before clicking on links.

Stay informed about cyber threats and best practices to recognize and avoid scams.

Regularly review bank and credit card statements for suspicious activity and report unauthorized transactions immediately.

Enable and maintain firewalls on devices and home networks to protect against unauthorized access.

Conclusion

In today's world of advanced technology and digital transactions, banks need to prioritize strong security to protect the customer’s financial assets and information. Thus, they invest heavily in advanced technologies, dedicated cybersecurity teams, and rigorous protocols to protect your hard-earned money and personal information. But the responsibility doesn't solely lie with the banks. As customers, we also play a vital role in safeguarding our finances. By practicing good cybersecurity habits, we can contribute to the overall security of our financial transactions.

Also read: What To Watch For When Using Mobile Bank Apps?