The accelerating adoption of technology is highlighting new risks, such as intensified cyber attacks, increased operational disruptions and more persistent algorithmic biases, according to a new World Economic Forum (WEF) report released in New York on Thursday.
Financial institutions, technology firms, policy-makers and regulators must work collectively on mitigation, the global institution concluded.
The report, Beneath the Surface: Technology-driven systemic risks and the continued need for innovation, is the first publication in the WEF’s two-part Technology, Innovation and Systemic Risk research initiative.
Prepared in collaboration with Deloitte, the report explores the relationship between increased technology adoption and the “potential shock of cascading risk factors”.
The report notes that hackers, disasters or geopolitics expose interconnected financial systems to a growing array of known and unknown vulnerabilities.
“This comprehensive study aims to establish a sector-wide understanding of technology-driven risks, and deliver insights for all stakeholders,” Drew Propson, the WEF’s head of technology and innovation in financial services, said.
“The need for continuing innovation, and for multiple financial sector entities to increase collaborative efforts, couldn’t be more critical as we work toward risk mitigation.”
Poor Defence Mechanisms
Certain financial services entities are not under the purview of financial services supervision and regulation, the report notes.
“While many emerging use cases of systemic risk mitigation are being developed in collaboration, there is no industry-wide vision of the future across most jurisdictions,” Propson said.
“And while the potential for technology to enhance risk mitigation is undeniable, addressing systemic risk must start with the basics.”
The report cites examples such as the SolarWinds breach, where a digital supply chain attack compromised almost 20,000 interconnected companies including major financial institutions and information technology vendors.
“We must move towards safe sharing of risk-based data across institutions and jurisdictions,” Rob Galaski, vice-chair and deputy global financial services leader at Deloitte, said.
“Systemically important institutions are currently defined by traditional measures of balance sheet size and a dated notion of what constitutes a financial institution,” he adds. “As our report points out, new measures such as size of network should also be considered when determining systemic significance.”
• George Russell