Cyber Security and Ransomware in Financial Markets

52 Pages Posted: 17 Mar 2022 Last revised: 21 Jun 2022

See all articles by Toni Ahnert

Toni Ahnert

European Central Bank, Financial Research Division; Centre for Economic Policy Research (CEPR); Systemic Risk Centre - LSE; Halle Institute for Economic Research

Michael Brolley

Wilfrid Laurier University - Lazaridis School of Business and Economics

David A. Cimon

Bank of Canada

Ryan Riordan

Queen's University - Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: June 20, 2022

Abstract

Financial markets are under constant threat of cyber attacks. We develop a principal-agent model of cyber-attacking with fee-paying clients who delegate security decisions to financial platforms. We derive testable implications about cyber attack vulnerability and fees charged. We also characterize the form of cyber attack chosen by attackers. Successful ransomware attacks are more likely than traditional attacks. When security is unobservable, platforms underinvest in security. Welfare can improve by targeting security investment through regulation (e.g. minimum security standards), or by improving transparency (e.g. security ratings). Our results support regulatory efforts to increase transparency around cyber security and cyber attacks.

Keywords: Cyber security, financial markets, platforms, ransomware, principal-agent

JEL Classification: G10, G28

Suggested Citation

Ahnert, Toni and Brolley, Michael and Cimon, David A. and Riordan, Ryan, Cyber Security and Ransomware in Financial Markets (June 20, 2022). Available at SSRN: https://ssrn.com/abstract=4057505 or http://dx.doi.org/10.2139/ssrn.4057505

Toni Ahnert

European Central Bank, Financial Research Division ( email )

ECB Tower
Sonnemannstraße 20
Frankfurt am Main

HOME PAGE: http://toniahnert.com

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Systemic Risk Centre - LSE ( email )

London
United Kingdom

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Michael Brolley (Contact Author)

Wilfrid Laurier University - Lazaridis School of Business and Economics ( email )

Lazaridis Hall, 4071
75 University Avenue
Waterloo, Ontario N2L 3C5
Canada

HOME PAGE: http://www.mikerostructure.com

David A. Cimon

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

HOME PAGE: http://www.davidcimon.ca

Ryan Riordan

Queen's University - Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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