As digital technologies press ahead, the operation of financial systems increasingly
relies on ICT systems and networks, so managing cyber security issues to
maintain financial stability has become key not only for individual institutions
but also at systemic level. The objective of this paper is to identify the relevant
concepts, to describe the processes how systemic cyber security risks escalate
and to assess international and local regulatory and institutional efforts targeting
risk reduction. In the first part, the concepts of cybersecurity, cyber resilience
and cyber risks are clarified with particular attention to the definitions used in
the financial sector. The study focuses on the analysis of three models (framework
systems offered by the IMF, the ESRB and the National Bank of Hungary
(MNB) describing the escalation of how cyber security incidents affect the financial
system as well as the nature of transmission channels. The author compares
the logical structures, differences and applicability of the models, and makes an
assessment of how the individual models can help identify and reduce systemic
risks. The issues of financial stability relevant to Hungary are also presented. In
the last part of the paper, the risk reduction measures to be applied in the course
of managing systemic cyber risks are reviewed. Applying a three-tier approach of
preventive, detective and corrective control measures, the risk reduction options
available for regulators, information sharing and testing are analysed. To sum up,
we emphasise the cyber resilience of the financial system can only be achieved by
a multi-disciplinary approach assuming the coordinated efforts of cybersecurity
and financial stability experts.
