Technology has opened up a can of worms for the City
Glitches that recently hit UK banks highlight vulnerability of the systems used by financial services.
When the technology at RBS, NatWest and Ulster banks collapsed, with a glitch at Nationwide not long after, it was natural that eyes should focus on client security and the threat this poses to the financial system.
At the same time, the City regulator sent out a general warning about technology failure without publicly acknowledging the details of what failure would mean, not only for individual financial firms, but systemically for the City as a financial centre.
Of course, the increasing sophistication of financial services is based on the assumption that technology – both software and frameworks – would continue to improve.
At the same time, it is clear that there will be no ‘big bang’ moment, just technological innovations gradually evolving, by leaps and bounds, sometimes without any noticeable change.
Although the focus at present is on identity theft and basic fraud perpetrated on bank accounts, which is irritating enough to account holders, there is a darker, more insidious threat posed by the increasing sophistication of technology.
As things stand, the internet is a massive market of integrated systems, not supervised by any global or national regulator, with only the occasional intervention of the authorities – China is a good example, and more recently Egypt – with hackers and even states operating in cyberspace like cowboys of the old Wild West.
Business-to-business technology may have firewalls and anti-virus software, some may even have straight-through-processing, but pimpled-faced teenage hackers, isolated in their bedrooms, may still occasionally penetrate these barriers for fun.
It is the interface between the relatively highly-protected private computer systems and the wide-opened internet where the danger lies.
Further, with many chief technology officers preferring to outsource their firms’ technology to Asia and former Iron Curtain countries, often based simply on price, with a scale-free global internet, no one is certain what new developments will take place over the next decade or so.
Just think of the speed with which the internet itself was developed, and with it a variety of social media, many of which died just as quickly as they came on stream.
For the leaders of global financial firms, politicians and wider industry, the real threat is not from hackers, but from rogue states and some so-called friendly cities, whose aim may simply be to disrupt the smooth workings of the City or spy on the private communications between firms.
About two years ago the world suddenly became aware of the Stuxnet worm, the implant which was allegedly the work of US and Israeli technological spymasters.
Whatever shortcomings Stuxnet had, including what one expert called a ‘killer command’, it was still effective in that it sent a message of the level of sophisticated research some people were working at.