Threats to compliance are growing at an alarming rate with the number of security breaches that have occurred in recent months. Financial institutions understand the importance of security and regulatory compliance, but when they find themselves unable to protect sensitive data based on best practices, you have to wonder about the real cost of a data breach.
According to the NTT Communications 2016 Risk Value Report, about 25% of businesses expect to suffer a data breach in the future. With an average security breach costing about $1 million, small to medium size businesses can’t afford an incident. On the other hand, highly regulated financial institutions like banks and insurance companies are also more vulnerable to churn but suffer significantly higher data breach costs.
With the increase of mobility and data sharing, security incidents can occur as a result of human error, lack of training, and hacking. According to the Ponemon Institute, about half of all data breaches are the result of a cyber crime or malicious intent, 23% because of human error and 27% due to system errors.
These breaches, in turn, can cost $236, $197, and $213 per capita respectively. Furthermore, a security breach that involves less than 10,000 records can cost nearly $1 million while a breach of more than 50,000 records can add up to $13 million (and these figures just cover businesses).
What are the overlooked costs?
It’s difficult to quantify the complete financial costs that can be attributed to a data breach. This is because financial organizations will not only have to incur costs resulting from noncompliance like penalties from regulatory bodies, attorney fees, and prosecution, they can also lose customers as a result of a damaged reputation.
Then you also have to calculate the costs associated with downtime, loss of assets, and the impact of operational activities that were rendered unproductive. Furthermore, you also have to calculate the costs associated with the investigation, victim identification, response, notifications, victim outreach, internal and external communication campaigns, and public response.
There will also be a real potential of incurring costs for compensation as well. This means that if a financial institution is found to be non-compliant after a security breach, they will leave themselves open to a variety of expenses associated with resolving this situation.
As a result, financial organizations need to ensure that they’re always properly prepared and not get blindsided by the penalties that are associated with regulatory settlements.
Financial organizations need to take a proactive approach to cyber security
In the age of ransomware attacks and mounting risks and expenses associated with a breach, financial institutions need to make risk-aware decisions. This means that organizations need to take necessary steps to mitigate risk by addressing threats and vulnerability to secure both the institution’s and the customer’s sensitive data.
Furthermore, financial organizations need to take advantage of encryption technologies which are also required by most regulatory bodies. An incident response plan with a dedicated threat response team will also go a long way to reduce the cost of security breaches.
It’s also imperative to regularly train employees as it can be an effective approach to diminish the financial cost of a breach. As the consequences of a data breach can be extensive, both in the immediate and well into the future, educating staff about security and compliance can significantly help mitigate your risk.
Interested in learning more about data security for the FinTech sector? Contact us today and schedule a consultation with an Acadia technology specialist.