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IT Risk Discussion Paper

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IT Risk Discussion Paper March 2018 IT Risk Discussion Paper DRAFTED BY Marc ANDRIES, David CARTEAU, Sylvie CORNAGGIA, Pascale GINOLHAC, Cyril GRUFFAT, Corinne Le MAGUER CONTRIBUTORS Roméo FENSTERBANK, Thierry FRIGOUT, Pierre HARGUINDEGUY, Christelle LACAZE EXECUTIVE SUMMARY The emergence of cyber-attacks in recent years has heightened concerns about IT risk. These concerns are not specific to the banking and insurance sectors, but they are of particular relevance to these sectors, which are essential components of a properly functioning economy and key actors in protecting public interests. To address these concerns, the supervisory authorities have gradually ramped up their actions in this field. International bodies have developed new IT risk rules, and authorities, such as the ACPR, acting in particular within the framework of the European Single Supervisory Mechanism for the banking system, have strengthened their supervision. This discussion paper emphasises that IT risk management is no longer a topic specific to IT teams, but must be part of an overall approach to risk control and risk management coordinated by the risk management function. Therefore, the operational risk management reference framework must be refined to more effectively include all aspects of IT risk within the recognised categories of operational risk. Under such an organisation, the management body must be directly involved in ensuring the alignment of its IT strategy with its risk appetite, but also in implementing and monitoring the risk management framework. Based on their supervisory experience, the various departments of the ACPR have developed a definition and classification of IT risk that cover its various aspects and enable treating it globally. Institutions supervised by the ACPR can use this classification to develop or reinforce their own risk map. This classification covers the three main processes applicable to implementation and management of information systems, i.e. issues in relation to the organisation, proper functioning and security of information systems. For each of these major processes, this discussion paper describes a set of risk factors, which are examined on two levels to enable a fairly detailed analysis. For each risk factor, the main expected measures for mitigating and controlling risks are presented. These measures are optional and institutions can tailor them to their specific context. They illustrate the best practices usually observed by the ACPR and they aim to create a common ground for controlling IT risk management in the banking and insurance sectors. ACPR – Information technology risk 2 CONTENTS 4 Introduction 6 IT risk and its inclusion in operational risk 6 1 Regulatory status at the international level 7 2 The ACPR’s approach to defining and classifying IT risk 11 Organising the information system, including its security 12 1 Involvement of the management body 13 2 Alignment of IT strategy with the business strategy 14 3 Budget management 15 4 Roles and responsibilities of the IT and information security functions 16 5 Rationalisation of the information system 17 6 Control of outsourcing 19 7 Statutory and regulatory compliance 20 8 Risk management 23 Operating the information system (“build and run”) 24 1 Operations management (systems and networks) 25 2 Continuity of operations management 28 3 Change management (projects, upgrades, fixes) 30 4 Data quality 32 Securing the information system 33 1 Physical protection of facilities 33 2 Identification of assets 34 3 Logical protection of assets 39 4 Detection of attacks 41 5 Response to attacks 43 Appendix: Classification of IT risk ACPR – Information technology risk 3 Introduction or several years, many international including guidelines to be followed by bodies have focused on the growing supervisory authorities for adopting a uni- IT risk in the banking and insurance form approach to assessing institutions’ IT F 2 sectors. This emphasis is driven by two risks. The European Insurance and observations. Firstly, institutions’ operations Occupational Pensions Authority (EIOPA3) now rely entirely on automated information has published an issues paper on cyber systems, including for customer relations,1 risk4 and has undertaken a review of this and these environments have become com- risk in conjunction with major players in plex to manage. Secondly, even when all the insurance sector. 1 This is at times referred to as the “digitisation” of banking precautions are taken, IT damage is a and insurance operations. major risk for these institutions’ operations. Among the various IT risks, cybersecurity 2 EBA (2017): “Guidelines on ICT Risk Assessment under the In particular, the capacity of cyber-attacks risks have been given particular attention Supervisory Review and Evaluation process (SREP)”, to cause harm has steadily increased in by several authorities. The G7 has adop- 11 May 2017. recent years. Whereas, initially, these ted high-level, non-binding principles 3 In French Autorité européenne des assurances et des pensions attacks focused primarily on customer intended to provide guidance and har- professionnelles (AEAPP). 5 4 Drafted by its Insurance and equipment and therefore were discrete monise actions in this area, and conti- Reinsurance Stakeholder Group events that caused little overall disruption, nues these actions on several fronts to (IRSG): “Cyber Risk – Some Strategic Issues” (April 2016). they now directly target institutions’ IT envi- encourage the efforts of regulators in 5 G7 (2016): “Fundamental Elements of Cybersecurity for the ronments and can have major conse- the sector. The Committee on Payments Financial Sector”, October and quences, including systemic impacts, due and Market Infrastructures (CPMI)6 of G7 (2017): “Fundamental Elements for Effective Assessment to the increasing interdependency between the Bank for International Settlements of Cybersecurity in the Financial Sector”, October. the various financial players. and the International Organisation of 6 Committee on Payments and 7 Market Infrastructures (CPMI). Securities Commissions (IOSCO) have 7 International Organisation In response, the bodies that develop inter- published guidelines to improve the resi- of Securities Commissions (IOSCO). national standards applicable to the lience of market infrastructures to 8 8 CPMI-IOSCO (2016): banking and insurance sectors have begun cyber-attacks. The International ”Guidance on Cyber Resilience for Financial Market to articulate their expectations vis-à-vis the Association of Insurance Supervisors Infrastructures”, June. industry. The European Banking Authority (IAIS)9 has also published an issues 9 International Association of Insurance Supervisors (IAIS). (EBA) has published several documents paper on cyber risk for the insurance 10 IAIS (2016): “Issues Paper prescribing standards in relation to the IT sector,10 which will be followed by an on Cyber Risk to the Insurance Sector”, August. risks to which the banking sector is exposed, implementation document. ACPR – Information technology risk 4 Introduction All of these documents explicitly or implicitly in the ECB’s actions by making its off-site recognise IT risk as an operational risk, as supervisors available to the SSM’s joint documented and then regulated by the Basel supervisory teams and by having onsite Committee on Banking Supervision (BCBS) inspections performed by the Banque de from 2003. However, the inclusion and France’s inspectors. In the areas in which treatment of IT risk within operational risk it has direct authority, such as “less-signifi- still needs to be clarified for the same treat- cant institutions”, other banking sector enti- ment principles to apply thereto. ties (in particular, finance companies and payment service providers) and insurance, On their side, the supervisory authorities the ACPR also carries out numerous actions have also significantly ramped up their in connection with its ongoing supervision actions in the IT risk field. Starting in and onsite inspections. The constant increase November 2014, when the European in IT risks is an ongoing challenge that Central Bank (ECB) acquired direct super- requires expanded resources and skills. visory powers over the largest banks of To meet this challenge, the ACPR has conti- Euro-zone (“significant institutions”), assisted nued its training actions and supplemented by national supervisory authorities compri- the dedicated onsite inspections teams with sing the Single Supervisory Mechanism a network of around 20 IT risk experts. (SSM), it immediately initiated several off-site These experts represent the ACPR in various supervisory actions and onsite inspections. international bodies working on IT risk and Assessment questionnaires focusing on cybersecurity issues. cybersecurity and IT outsourcing practices enabled a quick evaluation of the strengths This discussion paper was drafted by IT and weaknesses of the sector, which led to experts from the ACPR’s network. It aims corrective actions. Numerous onsite inspec- to focus attention on IT risk issues deemed tions, usually conducted by the national significant, both in terms of recognising authorities, supplemented the process and and reducing such risks. It is a contribution provided precise information on actions to to the discussion on how IT risk controls be carried out. should be incorporated into the operatio- nal risk management framework. Firstly, This approach was already well-established the paper proposes a definition of IT risk, in France because, in 1996,
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