Regulating Cyber Threats in the Financial Services Industry: Chapter 3

Abstract

Three critical questions are outlined in this chapter. First, what are cyber risks and how do these risks affect the capital and credit markets, national securities, commodities and derivatives exchanges, banking and payments systems as well as other systemically important financial intermediary services? Second, if financial markets are a critical infrastructure resource that resemble a kind of commons might cyber risks be understood as systemic risks? If cyber risks constitute systemic risks, what impact might these risks have on financial markets? Finally, have proposed solutions effectively mitigated the systemic risk concerns that cyber risks engender? This chapter outlines principles governing the development of cyber risk regulation. It focuses, however, on hackers and others who seek to disrupt securities and commodities exchanges, banking institutions, and payment systems. Because these businesses are publicly traded companies competing in capital markets to attract investors, it is unlikely that these institutions will be motivated to reveal risk exposures if the sole reward is protecting the public good. This chapter evaluates the contributions of industry-initiated and federal agency-proposed solutions to the growing cyber risks that threaten domestic and international financial institutions.