FDIC’s Top 3 Challenges Are All Tech Related

bakdc/Shutterstock.com

Among the financial regulator’s biggest challenges, IT modernization and cybersecurity topped the list.

The Federal Deposit Insurance Corporation could solve its top three most pressing challenges by addressing issues with its oversight of cybersecurity and emerging technologies, according to a report from the agency’s inspector general.

“The FDIC plays a critical role in maintaining the stability of our financial system, and in protecting the savings of millions of Americans,” FDIC Inspector General Jay Lerner wrote, noting the agency insures more than $7.4 trillion at some 5,400 banks. In order for the FDIC to meet this mission, the agency must ensure the security of its own systems, as well as the systems of the banks it oversees.

The top three management and performance challenges for FDIC, according to the IG, are:

  • Enhancing oversight of banks’ cybersecurity risks.
  • Adapting to financial technology innovation.
  • Strengthening FDIC information security management.

As part of its oversight responsibilities, the FDIC conducts regular assessments of banks’ cybersecurity posture through a program called Information Technology Risk Examination, or InTREx. Since the InTREx process was adopted in 2016, FDIC bureaus have reported a significant increase in the time it takes to conduct an examination, according to the report.

For example, the New York regional office reported a 67 percent increase in examination time, “adding an extra 80 hours to the examination,” the report states. FDIC officials told the IG the agency is staffing up in response, adding 23 full-time positions in 2019.

The IG also warned of the significant threat from third-party technology service providers that work across the financial sector.

“Significant consolidation among [third-party service providers] caused large numbers of banks—especially community banks supervised by the FDIC—to rely on a few large service providers for core systems and operations support,” the IG wrote. “As a result, a cybersecurity incident at one TSP has the potential to affect multiple financial institutions.”

FDIC regulations require banks to audit these third-party companies’ cybersecurity measures, however, the IG “did not see evidence, in the form of risk assessments or contract due diligence, that sampled financial institutions fully considered and assessed the potential impact and risk of TSPs,” the report states.

One reason financial institutions tap third-party providers is their ability to stay on the leading edge of the technological curve. While they introduce some risk, the IG’s second priority for the coming year focuses on the need to adopt these new technologies and create flexible regulations that can adapt in kind.

While technology continues to evolve across sectors, the IG report notes several emerging technologies specific to the financial sector, such as mobile wallets and digital currencies.

“According to the Department of the Treasury, from 2010 to 2017, more than 3,330 new technology companies were formed to serve the financial industry,” the report says. “The Treasury Department also estimated that one-third of online U.S. consumers use at least two financial technology services—including financial planning, savings and investment, online borrowing or some form of money transfer and payment.”

These technologies pose three significant risks: the cybersecurity of the tech, as well as the companies providing these products and services; the operational risks of using new tech that might not be in compliance with federal regulations; and falling behind the curve as technologies like blockchain and cryptocurrencies upend the traditional models banks have come to rely on.

“The FDIC should ensure that banks have proper governance and risk management practices around these technologies,” the IG said, suggesting an increase in the number of examiners and improved training on the latest emerging tech.

Finally, the report stresses the importance of looking inward to ensure FDIC itself isn’t the weak link in the cybersecurity chain. As the clearinghouse for information on much of the financial sector, the FDIC is a prime target for bad actors.

“The FDIC maintains thousands of terabytes of sensitive data within its IT systems and has more than 180 IT systems that collect, store or process personally identifiable information of FDIC employees; bank officials at FDIC-supervised institutions; and bank customers, depositors and bank officials associated with failed banks,” the report notes. “FDIC systems also hold sensitive supervisory data about the financial health of banks, bank resolution strategies and resolution activities.”

In fact, in recent years, several retiring FDIC employees were found to have taken hundreds of thousands of records on American banks and citizens, some of whom brought that data to their next jobs at foreign financial institutions. Prior to that, the agency was targeted by a “sophisticated” cyberattack campaign in 2011 that resulted in more than 90 work stations being compromised.

An IG report released in October also gave FDIC a 3 out of 5 rating on cybersecurity, chiding the agency for not properly testing security controls or reporting on high-value and high-risk assets.

This situation is not set to improve, according to the latest IG report, as the agency is in the midst of three major IT initiatives, none of which are guided by a strategic plan or an “effective” enterprise architecture.

“An ineffective enterprise architecture limited the FDIC’s ability to communicate to business stakeholders how it intended to implement its new IT strategies,” the report states. “In turn, this caused stakeholders to question the decision to adopt new cloud technologies and the impact on business processes.”

The report notes FDIC officials have cleared or are working on most of the recommendations surrounding these issues, and have increased the Office of the Chief Information Officer’s budget by 1.3 percent ($650,000) to “enhance the protection of the FDIC’s applications systems and databases from breaches and intrusions, and improve the FDIC’s responsiveness and resilience.”

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.