EXCLUSIVE GUEST ARTICLE: The Digital Frontier Under Attack; Cybersecurity As An Attractive Investment Opportunity

Fabiano Vallesi, Julius Baer, Strategy Research & Next Generation, 12 November 2015


As the financial industry's threat landscape becomes more sophisticated, cybersecurity is shaping up to be an attractive growth sector. Fabiano Vallesi of Julius Baer explains why this sector calls for some investor attention.

As the wealth management industry becomes increasingly digitised, the volume and sophistication of cybercrime within it is growing. Cyber attacks around the world cost firms $315 billion in just one year and the financial sector is the most fearful of such threats, according to recent research by Grant Thornton. And now investors are being given the opportunity to capitalise on the battle against cybercriminals. For example, there is now a fund on the London Stock Exchange that tracks the performance of firms trying to defeat cyber criminals. So it is unsurprising that governments and corporations have data protection and privacy among their top priorities. The author of this article, Fabiano Vallesi, strategy research and next generation, Julius Baer, explores cybersecurity from an investor's point of view.

Cybersecurity, which involves protecting electronic data against criminal or unauthorised access, is facing multiple threats, notably cybercrime and online industrial espionage, both of which are growing rapidly. IT threats have been a feature of the internet almost since it has been in existence. Yet the inflection point for cyber “in-security” seems to have been 2014 when the number of security events and the average cost of a data breach rose to unprecedented highs and media reports of data breaches became as commonplace as the weather forecast.

A surge in cyber attacks with large cost implications for businesses
Last year, a total of 42.8 million detected attacks were reported, a 48 per cent increase from the previous year. Then worryingly, a simulation test suggests 70 per cent of breaches are going undetected and of those being found the average hacker spends 205 days in systems before being discovered, according to a report from Verizon. Furthermore, the price of cybercrime has reached a record of $12.7 million for the average US business, with companies in energy and utilities, financial services and technology experiencing the highest annualised cost in 2014.

A growing concern for governments
The World Economic Forum listed cyber attacks and critical infrastructure breakdowns among the top five global risks. McKinsey thinks that a relatively small number of destructive attacks could materially slow the pace of technology and business innovation. As a result, the world would capture less of the $10 trillion to $20 trillion opportunity available from big data, cloud computing, and other innovations by 2020. The aggregate impact in lost productivity and growth could be as much as $3 trillion.

Data = $$$
Data has long been a prime target for hackers, including financial information, intellectual property, and insider business information and authentication credentials. However, nearly 70 per cent of data breaches included information relating to real names or identities in 2014, according to Symantec. This highlights that attackers are increasingly targeting information that can be leveraged for monetary gain. Hence it should not be surprising that a black market has developed for stolen identity details, especially for those in the financials and healthcare domain.

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