Cyber risk viewed as the largest threat to financial markets going into 2022, finds DTCC survey

Alongside cyber risks, COVID-19, geopolitical risks and trade tensions, climate change and inflation were identified as the top five biggest threats to the global financial markets.

A new survey by The Depository Trust and Clearing Corporation (DTCC) found that respondents viewed cyber risks as the greatest threat to the global financial markets in 2022.

Of those surveyed, 59% included cyber risks in their top five, with 24% citing it as the top overall threat to the industry.

The increased sophistication of attacks and the industry’s increasing digital footprint were highlighted by respondents as key drivers of this specific area of risk.

Infectious disease/pandemics, or more specifically the COVID-19 pandemic, was the second most cited in respondents’ top five risks, with 52% identifying this as a concern. However, compared to last year’s survey, the risk has seen a percentage drop of 15%.

Several survey participants said they believe the pandemic will continue to impact the industry, disrupting supply chains and driving market volatility.

In addition, respondents raised concerns about risks associated with maintaining effective cybersecurity practices in a remote work environment.

Geopolitical risks and trade tensions were the third most frequently cited of the top five risks, with nearly half of respondents, 49%, identifying this as a significant risk. Several participants highlighted concerns over the potential for increasing state-sponsored cyber-attacks.

“The survey shows that cyber risk is pervasive; it’s striking to see its impact extend across multiple top threat areas,” said Michael Leibrock, chief systemic risk officer at DTCC.

“When describing the pandemic, risk managers stated that it left the industry more vulnerable to cybercrime. As a result of this and other drivers, it is critically important that firms continue to bolster their response plans, practice simulations, and frequently review their cybersecurity and risk management practices to assess whether they’re staying on top of this evolving threat.”

Rounding up the top five risks, climate change and inflation both advanced significantly compared to last year’s survey, being cited as the fourth and fifth most cited risks, respectively.

Climate change was cited by 38% of respondents as a top five risk, an increase from 20% last year. Meanwhile, 34% cited inflation as a top five risk, a huge increase from just 7% in last year’s survey.

According to DTCC, respondents said that climate change posed increased “physical risks” that can take their toll through higher costs, business disruption, and loss of lives. In addition, concerns were raised that we could be at a tipping point with climate change, while it remains to be seen whether it will be addressed by global economies proactively or reactively.

In respect to inflation, DTCC found that 77% of respondents said they expect inflation to be equal to or higher than current levels a year from now, with some citing the belief that inflation does not appear to be transitory, and that it may slow down the economy as it weighs on purchasing power.

Meanwhile 63% of participants raised concerns that if interest rates will be kept low for too long, it could create continued inflationary pressure and/or asset bubbles.

“The risk landscape is constantly evolving yet deeply interconnected, which can make it difficult to predict what’s around the bend and where risk management priorities should lie,” said Adrien Vanderlinden, systemic risk executive at DTCC.

“Risk managers should place continued focus on implementing tools that can help identify and evaluate risk, as well as develop plans to mitigate those risks.”