Hybrid and Cyber Security Threats and the EU’s Financial System

Abstract

Increasing cyber and hybrid risks will test the European Union’s system of fragmentation on issues of security, but centralization on financial and other economic issues. This asymmetry was not an obstacle in a world in which security threats were more contained or of a different nature. But the world is changing. In this article, we document the rise in cyber attacks in the EU. Meanwhile, hybrid threats are real, though difficult to quantify. We then explore preparations to increase the resilience of the financial system in terms of regulation, testing, and governance. We find that at the individual institutional level, significant measures have been taken, even though there are diverging views on whether individual companies are sufficiently prepared. More worryingly, preparations appear less advanced at the system-wide level. We recommend that EU finance ministers increase resilience through regular preparedness exercises and greater consideration of systemwide regulatory issues. A broader political discussion on the integration of the EU security architecture applicable to the financial system should also be advanced. This includes reopening the framework on foreign-investment screening in order to have screening of foreign investment in critical financial infrastructure at the EU level.