According to Statista, cybercrime is on the rise, with businesses experiencing estimated losses of $8.4 trillion in 2022, up from $5.99 trillion in 2021 and $2.95 trillion in 2020. Given that financial institutions are a prime target for bad actors, hedge fund managers must prioritize their cybersecurity measures.
This is where a managed IT provider for financial services can be invaluable. Misunderstandings between IT teams and hedge fund managers regarding cybersecurity can lead to gaps in protection.
This gap could arise from IT experts using blanket cybersecurity solutions instead of considering the unique needs of each hedge fund. Thus, working with a managed IT provider for financial services that understands the nuances of the hedge fund industry is critical to ensure impenetrable defenses against cybercrime.
So, where does the disconnect lie between IT departments and hedge fund managers?
Lack of Understanding of the Importance of “Crown Jewels”
In the world of hedge funds, the concept of “crown jewels” refers to the business’s most valuable assets, which can be anything from the personal data of investors and other confidential information to their proprietary algorithms and trading books.
Unfortunately, many IT departments fail to recognize the nuances of crown jewels and the consequences of a cyberattack. As a result, they attempt to apply a one-size-fits-all approach to their security solutions. This can be problematic for hedge fund managers, as their crown jewels are often unique and highly sensitive.
For example, the proprietary algorithms hedge fund managers use are often the key to their success, and any breach of this information could be catastrophic. Additionally, the personal data of their investors and employees are highly confidential and must be protected at all costs.
Protecting a Hedge Fund Manager’s “Crown Jewels”
IT security experts who do not understand the specific needs of a hedge fund manager may implement generic solutions that do not adequately address their unique vulnerabilities. This can result in a false sense of security, exposing the hedge fund manager to potential cyber-attacks.
Conversely, understanding the risks and consequences of a breach can help IT departments better tailor their security solutions to the needs of hedge fund managers. Let’s look at some examples of crown jewels, the associated cyber threats, and the potential impact on the hedge fund.
Client data is often the most valuable asset for a hedge fund. It is susceptible to various threats, including cyberspying, outright theft, publication on the internet, and destruction and sabotage. Any of these can result in severe reputational damage to the hedge fund and a loss of investor trust. It can also result in regulatory breaches, which could carry heavy fines.
Proprietary algorithms are often the lifeblood of hedge funds and can be some of the most valuable crown jewels. As such, they must be carefully protected from malicious actors. Cyber espionage is one of the biggest risks to proprietary algorithms, which could lead to their theft or replication.
Sabotage is also a significant concern, as malicious actors could attempt to alter the algorithms and disrupt their performance. The impact of such attacks could lead to losses for the hedge fund, as well as reputational damage.
A hedge fund’s trading book is another asset that must be protected from malicious actors. Cybercriminals could attempt to steal the information in a trading book or alter it for their own gain. Losing this valuable data or having it sabotaged could result in significant losses for the hedge fund, as well as reputational damage.
Sustained Ability to Trade
For hedge funds, the ability to trade is paramount. Malicious actors could attempt to disrupt a hedge fund’s trading activities by targeting their communication systems and networks. Not only would this disrupt the hedge fund’s ability to trade, resulting in a potential breach of contract as they cannot manage the portfolio, but it could also have broader implications on market liquidity.
Public Website and Client Login
Hedge funds often have a public website and client login portals. These can be a target for malicious actors attempting to gain access to confidential information or disrupt the fund’s operations.
Cybercriminals could use DDOS, malware, phishing attacks, or other techniques to gain unauthorized access to customer accounts and confidential data. The potential loss of this data and the reputational damage this could cause makes it essential to secure these systems.
How IT Departments Can Protect Hedge Fund Managers
Taking a proactive approach to cybersecurity is paramount for protecting hedge fund managers from malicious actors. IT departments should thoroughly assess the potential threats and vulnerabilities of the hedge fund and implement security solutions tailored to their unique needs.
Some of the steps they can take include:
- Installing anti-malware, anti-virus, and other robust security software
- Implementing strong authentication measures such as multi-factor authentication for customer accounts
- Updating and patching systems regularly
- Performing regular penetration testing to identify vulnerabilities
- Ensuring passwords are secure and not easy to guess
- Utilizing intrusion detection systems and firewalls to detect malicious activity
- Limiting access to confidential data on a need-to-know basis
- Utilizing encryption for data at rest and in transit
- Using AI and machine learning to detect suspicious activity
- Backing up data regularly in multiple locations
- Ensuring mobile devices are secure
- Regularly auditing systems for compliance with regulations and best practices
- Training employees in cybersecurity best practices
Shield Your Hedge Fund Against Cybercrime’s Ever-Evolving Threats with SeaGlass Technology
With the ever-growing complexity of cyber threats, hedge fund managers must have a comprehensive cybersecurity plan. Unfortunately, many IT departments lack the resources and expertise to adequately protect their systems.
SeaGlass Technology is a managed IT provider for financial services firms with an in-depth understanding of the specific challenges and risks facing hedge funds. We can provide your firm with a tailored cybersecurity solution that meets all your regulatory requirements while protecting your systems from malicious actors.