A cyber attack on financial institutions could undermine consumer confidence and spark a run on the banks, warned a new report.
It noted that the level of confidence in the financial system is a significant factor in determining whether such an attack would lead to wider systemic problems.
"Because data integrity is key in the financial sector, the loss of confidence in the damage scenario could be very severe... especially if data manipulation has gone undetected for a prolonged period," said the report by the Monetary Authority of Singapore (MAS).
It added that while banks can mitigate the impact of a cyber attack by ensuring they are underpinned by healthy levels of capital, "the impact of a loss of confidence in a bank can be hard to estimate or predict".
The report said: "A loss of confidence is likely to render the bank more vulnerable, with knock-on effects to the wider financial system. For instance, a loss of confidence in a bank could lead to a run on deposits."
It comes on the back of guidelines the Association of Banks in Singapore released earlier this month that aim to strengthen the financial sector's cyber resilience.
They provide financial institutions with best practices on how to conduct attacks that test their defences by using the techniques employed by hackers.
Cyberthreats are constantly changing and the perpetrators' motivations will continue to evolve, the MAS noted in the review, which was released last Friday.
A loss of confidence is likely to render the bank more vulnerable, with knock-on effects to the wider financial system. For instance, a loss of confidence in a bank could lead to a run on deposits.
MONETARY AUTHORITY OF SINGAPORE, in a report that was released last Friday.
"The relationship between cyber attacks and financial stability is increasingly important to understand," it said, warning that no one is immune to such threats.
The WannaCry ransomware campaign, for example, hit both companies and countries last year and disrupted operations across the world.
The MAS study considered a range of scenarios, including the theft of money and data from a bank, disruption of its client-facing, trading and payment systems, and the corruption of its database.
It said attacks can be prevented from causing systemic problems if the Government works with banks to coordinate crisis communication to ensure consistent messages.
Another avenue is to impose temporary market closures or bank holidays to stop panic spreading into the wider financial system. The authorities could also provide banks with liquidity to tide them over stresses.
Most attacks could have been prevented if institutions practised basic cyber hygiene, the MAS said.
In September, it started a public consultation to make legally binding a set of six key cyber security steps to protect bank IT systems.
But financial institutions must also do their part by putting in place business continuity plans in case of an attack and to test them regularly in a realistic manner, it noted.
"Early detection and an effective incident response can help to contain the consequences and mitigate the impact of a cyber attack not just within a bank, but also to the broader financial sector," the MAS said. It also encouraged the global financial industry to work together: "One institution's cyber incident can contribute to strengthening the defences of other institutions if information on cyberthreats, incidents and lessons learnt are shared.
"Similar to information sharing between financial institutions, regulators stand to gain from sharing cyberthreat information as it enhances their supervision and policymaking."