The Financial Conduct Authority (FCA) has contacted some of the UK’s top banks to make sure they are prepared for a potential cyber-attack, with the current situation between Russia and Ukraine. Some of the biggest firms under the UK regulator’s watch have been contacted with a ‘Dear CEO’ letter, asking them if they have adequate systems and controls to manage cyber risk in light of Russia’s invasion of Ukraine.
The UK’s National Cyber Security Centre urged UK organisations a few weeks ago to bolster their cyber security resilience in response to “malicious cyber incidents in and around Ukraine. The FCA’s letter to chief executives asks them if they have seen the NCSC’s guidance and whether they have taken any steps as a result.
An FCA spokesperson said: “As you’d expect, we’re contacting firms to highlight the NCSC’s statement that organisations should bolster their cyber security resilience. We’d encourage all the firms we regulate to refer to the NCSC guidance on actions to take when the cyber threat is heightened.
‘Dear CEO’ letters are normally sent to firms in a particular sector or undertaking a particular activity where the FCA spots emerging issues, and are made public by the watchdog in due course, enabling the market to understand its concerns fuller.
The threat of cyber warfare continues to hover over the Russia Ukraine conflict. As the US and western powers impose sanctions against key Russian companies and oligarchs, the financial district of London (known as the ‘City’) could become a target for retaliation, as concerns continue that wealthy Russians are using the City’s property market and financial services infrastructure to launder money.
The UK supports strong sanctions alongside multiple other global powers. Earlier on 9 February, Reuters reported that the European Central Bank had posed similar questions to lenders in the bloc about the strength of their defences.
US authorities have also braced for the financial fallout of any conflict – financial institutions had earlier received an alert from the New York Department of Financial Services on the possibility of cyber retaliation.
It is also borne in mind that severe Russia sanctions could threaten stability. Global financial stability could come under pressure if some of the harshest possible sanctions are imposed on Russia, the chair of the world’s most powerful financial regulator has warned.
Western allies have discussed a raft of measures to punish Russia for the invasion of Ukraine. Severing Russian banks’ ties to international payments network Swift is reportedly among the harshest measures. Financial Stability Board chair Klaas Knot told the Financial Times such a move could cause a “severe disruption in payment flows”.
He said: “When applying severe measures, one should always think twice and also be aware of the consequences.” Swift backs trillions of dollars in transactions every year between banks through its secure messaging services, and was also a talking point for potential sanctions when Moscow annexed Crimea in 2014.
While the decision on sanctions is “taken on different grounds” than financial stability risk, Knot said that “they might have some financial ramifications”. Knot’s warning came on the back of fears raised by the European Securities and Markets Authority on 15 February that a “significant” market correction could come about. Knot said that banks were in a much better position today to survive any potential fallout from the conflict in Europe.
“A well-capitalised banking sector has proven its value over the last few years. I think if you look at the main difference between the pandemic shock and the global financial crisis, it was that this time around, the banks were absorbing rather than amplifying the shock,” said Knot.
Andy Jalil
The writer is our foreign correspondent based in the UK
