2025 Risk Series: Cybersecurity & Operational Resilience

The Regulatory Risks

Community banks are prime targets for cyberattacks. Threats such as ransomware, phishing, and supply chain attacks can disrupt operations, compromise sensitive data, and erode customer trust. Regulators require banks establish comprehensive cybersecurity frameworks, conduct regular risk assessments, and ensure the resilience of their operations against potential threats and disruptions.

Example Enforcement Actions

• Touchmark National Bank (2024):  Entered formal agreement with OCC to remediate failures to maintain safeguards for customer information, to plan for anticipated threats to info security, and to protect against unauthorized access into bank systems.

• Capital One (2020):  Fined $80 million for failures to design and implement network security controls, to identify and report cybersecurity vulnerabilities through internal audit, and to hold management accountable for addressing cloud operating environment vulnerabilities.  

• Morgan Stanley (2020):  Fined $60 million for failures to effectively address risks with decommissioning hardware, to exercise adequate due diligence in selecting a vendor and monitoring vendor performance during decommissioning, and to maintain appropriate inventory of customer data stored on the decommissioned hardware, resulting in noncompliance with "Interagency Guidelines Establishing Information Security Standards."

Key Risks to Address Now

• Inadequate Cybersecurity Frameworks:  Without a comprehensive cybersecurity strategy, banks are vulnerable to breaches that can compromise sensitive customer information and disrupt services.

• Third-Party Vendor Risks:  Reliance on third-party service providers can introduce vulnerabilities if these partners lack robust cybersecurity measures, potentially leading to data breaches or service disruptions.

• Insufficient Incident Response Planning:  A lack of effective incident response plans can result in delayed reactions to cyber incidents, exacerbating damage and recovery times.

• Regulatory Non-Compliance:  Failure to adhere to evolving cybersecurity regulations can lead to regulatory enforcement actions and fines.

Strategies to Strengthen Cybersecurity & Operational Resilience

• Develop a Comprehensive Cybersecurity Program

  • Implement a risk-based cybersecurity framework aligned with industry and regulatory standards.

  • Regularly update security policies and procedures to address emerging threats and ensure compliance with regulatory requirements.

• Enhance Third-Party Risk Management

  • Conduct thorough due diligence when selecting vendors, assessing their cybersecurity posture and resilience capabilities.

  • Establish clear contractual obligations for cybersecurity standards and incident reporting with third-party providers.

• Strengthen Incident Response and Recovery Plans

  • Develop and regularly test incident response plans to ensure prompt and effective action during cyber events.

  • Implement robust business continuity and disaster recovery plans to maintain operations during disruptions.

• Invest in Employee Training and Awareness

  • Conduct regular cybersecurity awareness training programs to educate employees on recognizing and responding to cyber threats.

  • Promote a culture of security mindfulness, encouraging staff to report suspicious activities promptly.

Take Action Now

Community banks must proactively enhance their cybersecurity and operational resilience to protect against evolving threats and comply with regulatory expectations. By implementing robust security measures, conducting regular assessments, and fostering a culture of awareness, banks can mitigate risks and avoid regulatory enforcement actions and fines.

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Stay tuned for the next edition in our blog series:  "Fraud Prevention & Internal Controls."