Financial institutions worldwide have been facing more and more cyber security threats. With cyber networks becoming more and more interconnected and integrated, the enhanced capabilities bring with it enhanced challenges. Regulators all over the world have been attempting to curb malpractices in the cyber security space for financial institutions and India is no different. The Securities and Exchange Board of India (SEBI) has been focusing their efforts on making cyber security and cyber resilience policies in order to ensure the robustness of the Indian economy.

Rising Trend of Cyber Frauds

Cybercrime in financial institutions has seen an almost meteoric rise in recent years.

1. Universal Cost

• Financial Costs: Cybercrime is estimated to cost global economies around $10.5 trillion a year during the year 2025 which is up from $3 trillion in 2015. Being one of the primary targets, financial institutions are a large contributor to those grim figures.

• Types of Cases: According to a recent report in 2023 by the Association of Certified Fraud Examiners (ACFE) the per incident cost for the financial services industry on average is $1.3 million dollars.

2. Possibility of Attacks

• Incidence: Financial institutions are 300 times more likely to be targeted by a cybercriminals over other industries (IBM X-Force).

• Types of Attacks: The most common types of attacks are phishing (35%), malware (25%), and ransomware (20%) targeting customer accounts and internal networks.

3. Compliance Costs

• Financial institution, on average, spends around $18.5 million annually on cybersecurity, more than any other industry (Accenture).

4. Emerging Trends

• Cryptocurrency Fraud: The crypto space could be seen as a heaven for fraudsters due to the lax regulatory frameworks and the enhanced anonymity inherently provided by the technology. Frauds involving cryptocurrency surged by 59% YoY in 2023.

• AI and Automation in Fraud: Automatic bot intrusions grew 40% in 2022, using AI to circumvent traditional fraud detection systems.

5. Regional Insights

• Asia-Pacific: India and China, due to their rapid adoption of a digital economy have been priority targets for cybercrime in recent years. This region observed a 35% rise in cyber fraud incidents in 2023.

Related Read: Overview of SEBI Cybersecurity and Cyber Resilience Framework: Strengthening Financial Market Defenses

6. Human Element

• Insider Threat: Around a quarter of all cyber frauds come from within. Either through negligence or malice, insider threats pose a unique threat to financial institutions.

• Awareness Gap: A lack of awareness of the many ways in which they can be taken advantage of leave employees defenceless against an ever-evolving range of cyber-attacks. 60% of employees within financial institutions express having insufficient training on cybersecurity practices.

7. Customer Sentiment

• Loss of Trust: Along with the financial losses, cyber-attacks also bring with them reputational losses and a deterioration of trust in the financial institution. In the case of a data breach in financial services, 62 percent of customers, Deloitte says, would not continue to use them.

• Demand for More Transparency: Customers around the world are waking up to the dangers that cybercrime poses to their assets. More than 70% of customers have expressed their desire to know more about what financial institutions are doing to protect themselves against cyber threats.

Ensuring Compliance with the Guidelines Issued by SEBI

SEBI has issued mandates that all regulated entities, including stock exchanges, depositories, mutual funds, brokers, and other intermediaries, have to comply with its cyber resilience framework. Such compliance starts with the creation of cybersecurity policies tuned to the size and operational complexity of an institution.

Cybersecurity audits, both annual and as may be necessary, ensure that financial institutions follow the guidelines and mandates issued by SEBI. The major areas of focus are: access controls, data protection, incident response, and system availability. Auditors review whether the regulated entities have implemented measures like encryption, multi-factor authentication, and monitoring systems.

By enforcing compliance, SEBI ensures that there is a universal baseline and a uniform level of cybersecurity across the financial industry within India. This reduces systemic risks and enhances investor confidence. Furthermore, non-compliances may lead to substantial penalties. This underlines the need for periodic audits to ensure that the systems in place do not get reduced to just words on paper. These audits also help in the early detection of vulnerabilities, thus enabling timely corrective measures.

The guidelines stress the adaptation to new emerging threats. An institution must regularly develop its technologies and train personnel for effective detection and response against the latest variants of cyber risks. By following these requirements set by SEBI, financial institution can create a base for trust and resilience.

Cyber Risks Mitigation by Means of Cybersecurity Audits

Though the digital evolution of financial services brought in a lot of efficiencies, it also opened many doors to cyber risks. Threats from phishing, ransomware attacks, data breaches, and insider incidents are real hazards facing financial institutions today. A single breach can cause significant losses, damage to reputation, and serious legal consequences.

SEBI cybersecurity audits are a proactive defence against exactly such threats. They involve a thorough testing of an institution’s network security, data management practices, and incident response. These audits reveal vulnerabilities like outdated software, weak passwords, and insufficient access controls.

Other components in the mitigation of cyber risks involve implementing advanced tools for monitoring internal systems on a continuous basis. SEBI guidelines propose the use of artificial intelligence and machine learning in an attempt to identify anomalies or prospective breaches. The audits further establish that the institutions have viable backup and recovery systems, minimizing downtime in case a cyberattack occurs.

Additionally, there is a risk that vendors from outside the organization who have access to critical financial information may knowingly or unknowingly expose the organisation to cyber threats. Audits by SEBI include a detailed examination of third-party relationships for the mitigation of supply chain vulnerabilities. These strategies assist financial institutions in significantly decreasing their exposure to cyber threats.

Benefits of Cybersecurity Audits:

1. Reduction in Cyber Fraud Incidents

• Reduced Probability of a Breach: Organizations that perform an annual cybersecurity audit are shown to reduce the probability of a breach by 30% – IBM Security Report.

• Enhanced Detection: Regular audits enhance detection rates for potential threats by up to 60%, greatly reducing the time to exposure.

2. Financial Benefits

• Reduced Breach Costs: Financial institutions that undergo regular cybersecurity audits show 23% reduction in average breach costs, saving approximately $960,000 per incident (Ponemon Institute, 2023).

• Operational Effectiveness: Audits uncover latent inefficiencies and outdated systems, allowing financial institutions to optimise and reduce operational costs by up to 20%.

3. Compliance and Avoidance of Penalties

• Regulatory Compliance: Audits ensure that legally mandated standards such as PCI DSS, GDPR, and ISO 27001 are complied with and this in turn minimizes the risk of excessive fines being levied. For example, GDPR non-compliances, cost an organization up to €20 million or 4% of revenue worldwide.

• Audit-Driven Improvements: Organizations with effective audit programs and regular audits have seen a 50% lesser chance of experiencing major fines and reputational consequences at the hands of regulators.

4. Improved Customer Confidence

• Customer Trust and Loyalty: Deloitte Insights reports that 80% of customers would stick to a financial institution if the organization was more transparent about its cybersecurity practices. Customers worldwide are waking up to the realities of cybercrimes and would like to know that their financial institutions are being proactive in addressing them.

• Improved Brand Recognition: Post an audit, institutions reflects a 15% higher customer satisfaction score. Audits are directly linked to efforts perceived as being taken toward the security of their data.

5. Proactive Risk Management

• Faster Response Times: Organizations with a sound audit program reduce their incident response times by up to 25%. This greatly reduces the scope for breaches and curbs the total amount of damage by a significant margin.

• Vulnerability Management: Audits detect 90% of the exploitable vulnerabilities within IT systems and can thus be resolved proactively.

6. Insider Threat Detection

• Employee Accountability: It is shown that insider threats account for 20% of all occurrences. Regular audits reduce such risks associated with employee fraud or negligence.

• Training and Awareness: Regular audits have shown a compliance with cybersecurity practices by the staff increase by 40%.

7. Fraud Prevention

• Improved Fraud Detection Algorithms: By providing more information to train on audits help enhance fraud detection algorithms and their precision, by up to 35%.

• Detection of Suspicious Behaviours: Early detection of fraudulent transactions have risen by 30% in financial institutions after the implementation of audit recommendations.

8. Better Governance

• Improved Policies: Cybersecurity audits help optimize data governance policies. It ensures that sensitive customer information is categorized and put under a tighter lock.

• Board-level Involvement: Institutions that present audit-driven reports have seen a 50% increase in overall participation in cybersecurity matters. This is critical as it reduces the number of opening for cybercriminals to access the system.

Safeguarding Financial Institutions Through Cybersecurity Audits

Financial institutions are the backbone of any economy, handling large volumes of sensitive data and capital. Of late cybersecurity has moved from an optional layer of security to an indispensable part of the system for these institutions. Cybersecurity audits by SEBI protects these institutions by making sure they adhere to proper security principles in all aspects.

These audits help in maintaining system integrity, keeping customer data secure, and smoothly performing financial functions. With these measures set up, SEBI is able to help prevent these institutions from being victims of emerging threats.

Conclusion

SEBI cybersecurity audits have become an essential part of security in financial institutions. They ensure regulatory guideline compliance, reduce cyber risks, and maintain the integrity of the financial markets and the economy as a whole. These audits are a major defence against the advancement of cyber threats, enabling financial institutions to evolve and prosper in an increasingly digitalizing world. By paving the way for cybersecurity, SEBI fosters trust and resilience within the Indian financial ecosystem.

Why Choose InCorp Global?

InCorp Global is your trusted partner for navigating SEBI cyber security audit requirements with confidence and efficiency. Our team of experts provides end-to-end support, from preparing for audits to addressing compliance gaps and implementing robust cybersecurity measures. With tailored solutions designed to meet the unique challenges of financial institutions, we ensure a seamless and stress-free audit process. By leveraging our in-depth knowledge of SEBI guidelines and cutting-edge cybersecurity practices, InCorp Global empowers your institution to strengthen its defences, meet regulatory standards, and protect critical assets. Choose InCorp Global for a comprehensive and reliable approach to SEBI cyber security audits.

Authored by:
Chandramohan Nair | Cybersecurity

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