The risk of cyberattacks and major IT outages to businesses in the coming year has been raised to “severe” by the Central Bank, due to firms' increasing reliance on third party companies for technical support.
The Central Bank published its Regulatory and Supervisory Outlook on Friday, which sets out its perspectives on the key trends and risks shaping the financial sector and its regulatory and supervisory priorities for the year ahead.
The biggest risk the report identified was to operations, noting that the final quarter of last year saw an intensification of the threat landscape across Europe with a greater level of “distributed denial-of-service” attacks being experienced by banks.
“The risk level of severe reflects firms’ increasing reliance on third parties which exposes new vulnerabilities as a result of this broader network of players, together with the growing incidence and sophistication of cyberattacks,” the report said.
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It pointed to the widespread global IT outages caused by the CrowdStrike software update in July as an illustration of “the disruption a single point of failure can cause”.
“Similarly, the technical issues that periodically affect customers’ ability to access bank accounts or payments services show how operational failures can mean significant disruption for businesses and consumers,” it added.
Central Bank governor Gabriel Makhlouf said the operational risks “reflect the increasing digitalisation” of financial services, as well as the “growing reliance” the financial sector has on outsourced services provided by third parties, including cloud service providers.
“Cyberattack threat levels are also increasing,” he said. “We have all seen the practical consequences service outages due to operational incidents can have on consumers and the wider economy.”
On macroeconomic issues, the report noted how geopolitical fragmentation has “moved from a risk to becoming a reality”, affecting trade and foreign investment flows and challenging the postwar multilateral order.
“The war in Ukraine and continued instability in the Middle East, continued tensions between major superpowers, and emerging friction between the US and its traditional partners, create a heightened risk environment,” it said.
“A further escalation in any of these areas or other such developments could trigger a cascade of adverse economic, financial market, supply chain and operational impacts, including through instances of cyber warfare.”
The report said growth in the Irish domestic economy has been “robust”, and that this is expected to continue over the near-to-medium term, supporting the financial position of borrowers, lenders and savers.
However, it warned that an increase in global trade tensions or a “fundamental change” in US trade and tax policy pose “significant downside risk” to the domestic economic outlook.
On the increasing prevalence of destructive weather events, the report said it is possible affected businesses and households may experience reduced insurance availability and affordability, and tighter lending conditions, particularly if collateral values are lowered.
