Digital transformation has been one of the most impactful evolutions for businesses across the world, with its technology-focused growth model enhancing business efficiencies in nearly every industry across the globe. However, despite its merits, the family office industry has been one of the slowest to adapt to it, perhaps due to the extremely sensitive and complicated nature of its operations.
The Cybersecurity Consideration in Digitisation
The financial services industry has always been an attractive target for cybercrimes. However, major institutions like banks have realised this and bolstered their cybersecurity to virtually impenetrable levels. However, this is different in the case of family offices. In fact, a recent EY study of single-family offices highlighted that over 61% of respondents have no defined cybersecurity protocols in place despite over 74% actually experiencing some form of cyber breach in recent years.
Here are some of the existing and emerging kinds of cyberattacks that are prevalent in the industry:
- Ransomware attacks – Ransomware is malware designed to cripple or deny access to critical data in a system unless a ransom is paid. These attacks have surged in recent years as malware has become increasingly difficult to detect and decrypt.
- Impersonation – Criminals can impersonate both the family office itself and its client(s) using simple phishing attacks or embedded malicious links. Impersonation attacks can result in massive financial losses and/or irreversible reputational damage for their victims.
- Espionage – Family offices are often guardians of sensitive and high-value private investments for their clients. Hackers have now begun targeting family office systems to obtain information on such deals for the purposes of extortion or hacktivism.
- Internal breaches – These include crimes like extortion and sabotage that are committed by the employees of the family office itself.
Best Practices to Ensure Digital Security
A 2017 Campden study reported that nearly 28% of ultra-high-net-worth families were hit by some form(s) of cyber attack(s) in the past – 77% of them being phishing attacks. However, despite the pandemic-driven surge in digitisation, cyber security protocols have hardly changed across industries. In fact, UpCity reports a notable rise in cyber crimes on U.S. businesses, costing them approximately $6.9 billion in annual losses.
Tackling the menace of cybercrimes is challenging, simply due to the sheer avenues of potential attacks. However, here is a basic overview of some of the most recommended steps that family offices can take to prevent and manage some of the common forms of cyberattacks mentioned earlier.
Prevention
Critical Systems Analysis
IT specialists should determine which components of the family office’s digital systems are the most critical to its operations and which are the most vulnerable to any form of attack. Ideally, such systems should also be backed up and air-gapped in order to mitigate the fallout that is caused by ransomware attacks.
Regular Cybersecurity Audits
Periodic audits will not only ensure that a family office’s cybersecurity protocols are up to date but can also detect and plug any new vulnerabilities that might arise due to the upgradation or migration of existing systems.
Training and Awareness
of the employees against the risks and mitigation of cyber-attacks can significantly curb the chances of any internal breaches
Protection
Antivirus and Firewall
A robust, enterprise-grade firewall should be able to protect, or in the worst case, stall, against the common forms of network-based cyber attacks. Antiviruses, on the other hand, will help detect and plug any threat at the file level.
Passwords and Multi-Factor Authentication
Employees must be trained to use strong, non-repeating, and periodically changing passwords. Multi-factor authentication of critical accounts is also imperative to ensure maximum data security.
Network Encryption
In order to minimise man-in-the-middle exploits, family offices should encrypt their server-client and server-server network communications.
Detection and Management
Every family office should have a well-defined cyber security protocol that contains standard operating procedures for the most common and prevalent cyber-attacks, including:
- System Monitoring Penetration Testing – Monitoring technologies and periodic penetration testing are designed to detect any hidden exploits that criminals can use to gain access to internal systems and data.
- Cyber Insurance – Finally, if an attack occurs, a cyber insurance plan will help mitigate some of the financial losses from its fallout. In the case of family offices, financial losses can severely hamper their operations.
These are some of the most fundamental cybersecurity measures that are already considered standard operating procedures in many other industries. Therefore, in an industry where billions of dollars worth of assets are transacted daily, family offices must seriously consider adopting these practices to bolster their digital security.