ECB scared for banks amid tech-linked losses

The European Central Bank (ECB) has expressed serious concerns regarding the increasing financial losses within the euro zone banking sector linked to technological issues and cybersecurity risks. A recent survey and inspections conducted by the ECB, initiated in 2020 and involving 22 supervised banks up until 2023, revealed that these banks incurred significant losses amounting to €148 million ($160.59 million) in 2022 due to the subpar quality of outsourced services. This marks a substantial 360% increase from the previous year, primarily attributed to high-volume events highlighting the heavy reliance of banks on external service providers.

The ECB’s findings also uncovered that many banks have outsourcing contracts that inadequately address IT security needs. This revelation aligns with a notable 56% increase in cloud expenses last year, with cloud services now constituting 3.1% of total IT spending by banks. The shift away from traditional in-house storage systems, coupled with insufficient risk management practices, raises concerns about the escalating expenditures in the cloud-related domain.

Beyond financial losses, the ECB identified widespread cybersecurity deficiencies within the banking sector. The investigation revealed that numerous banks failed to fully recognise potential risks and lacked robust incident detection and response mechanisms. As cybersecurity increasingly becomes integral to banking operations, these vulnerabilities pose a significant threat.

Today, the ECB is urging all supervised banks to promptly take measures to align their IT and cybersecurity risk management strategies with regulatory expectations. This call to action is intended to mitigate the growing threats associated with technological dependencies and safeguard the sector from future incidents that could jeopardise financial stability.

While these financial setbacks are characterised as isolated incidents, the uncovering of severe cybersecurity inadequacies within banks, particularly their inability to identify potential risks and respond effectively to cyber incidents, prompted the ECB to demand immediate action from all supervised banks. Concurrently, there is a global indication of a potential slowdown in technological investments, with the projected IT spending growth in the global BFSI sector dropping to 3% in 2023, down from the previous year’s 10%.