The 7 critical data security challenges facing financial services

Financial services organisations hold and process large amounts of sensitive data every day, including personal information and records of financial transactions.

As the data held by financial organisations is both valuable and sensitive, there’s a risk of breaches and cyber attacks – leading to stringent regulatory requirements.

As a financial services provider, you need to understand data security challenges and manage the risks they present. But, with a complex landscape and threats coming from multiple directions, that’s easier said than done. 

In this post we’ll explore why attackers love financial data, outline key security challenges for financial institutions and explore key steps that mitigate the risks of breaches.

 

Why is financial data a top target for cyber attacks?

Financial institutions face a unique set of cyber security risks that are different from those in other industries. These risks exist because the data they manage has direct financial value and can be used for criminal gain.

Sensitive financial data isn’t just account numbers; it’s transaction records, customer information, authentication credentials, and regulatory compliance documents. This data is essential for the daily operation of financial services, but it’s also a highly attractive prospect for cyber criminals.

The financial motivations behind targeting banks and financial institutions are clear: stolen data can be sold, used for fraud, or leveraged in extortion schemes. A single breach can have cascading effects, leading to financial loss, regulatory penalties, and reputational harm.

The types of valuable data cybercriminals commonly target are: 

• Customer personal information: Names, addresses, social security numbers, dates of birth, and contact details
• Account credentials: Usernames, passwords, PINs, and multi-factor authentication tokens
• Transaction data: Payment histories, account balances, transfers, investment portfolios, and loan information
• Regulatory information: Compliance reports, audit trails, risk assessments, and documentation required for legal or financial oversight

 

7 critical data security challenges facing financial services

1. Sophisticated cyber attacks and threat evolution

Advanced persistent threats (APTs) are targeted cyber attacks where attackers gain ongoing, often undetected access to a network. In financial services, APTs can lead to theft of sensitive information, fraud, or disruption of critical systems.

Cyber criminals often use artificial intelligence to automate attacks, create convincing phishing messages, and bypass traditional security controls. 

These evolving threats make it harder for even the most forward-thinking financial institutions to keep up with protection methods.

Common attack vectors in the financial sector include:

• Phishing campaigns: Attackers trick employees into sharing confidential information or clicking malicious links
• Ransomware: Attackers encrypt systems and demand payment to restore access
• DDoS attacks: Attackers overwhelm online services, causing them to crash
• SQL injection: Attackers exploit database vulnerabilities to steal or alter data

2. Evolving regulations

Every financial organisation understands the pressure and challenges posed by aligning data protection practices to new compliance guidelines – especially if the current processes and systems aren’t flexible. 

If you operate across multiple countries or regions it adds more complexity, as different jurisdictions have different rules regarding data protection and reporting. 

If an organisation doesn’t understand or adapt to new requirements quickly, it can lead to legal repercussions.

3. Third-party and supply chain exposure

Supply chain attacks occur when attackers compromise a vendor or service provider to access a financial institution’s data or systems. These attacks are challenging because many financial organisations rely on third parties for technology, payments, or data processing.

Vendor risk management includes assessing and monitoring third-party security practices. But, varying standards and a lack of transparency add a layer of complexity to monitoring and risk assessment. 

Financial services providers are often interconnected, so a vulnerability in one partner can affect multiple organisations.

Examples of third-party risks include:

• Vendors with weak security controls: Partners that don’t maintain adequate cyber security measures
• Software providers with unpatched vulnerabilities: Third-party applications that haven’t been updated with security fixes
• Payment processors exposed to cyberattacks: Companies handling transaction processing that become compromised
• Consultants with broad access: External advisors who have extensive access to sensitive information

4. Emerging technologies and expanding attack surfaces

An “attack surface” is the sum of all possible points where an attacker could try to access or steal data. In financial services, the attack surface is growing due to cloud computing, mobile banking, and the use of APIs (application programming interfaces).

Cloud adoption and digital transformation introduce new vulnerabilities, because data and services are accessible from more locations and devices. Open banking, which allows third-party apps to connect to financial data through APIs, increases the risk if APIs are not properly secured.

5. Insider threats and human error

Insider threats are risks that come from employees, contractors, or partners who have legitimate access to systems. These threats can be malicious (intentional harm) or accidental (unintentional mistakes). 

Human error is common in data breaches, with studies showing that most incidents involve mistakes such as misconfigurations or sending data to the wrong recipient.

Social engineering tactics, like phishing, target employees and trick them into revealing passwords or confidential information.

Types of insider threats include:

• Malicious insiders: Employees who intentionally steal data or sabotage systems
• Negligent insiders: Staff members who make careless mistakes that lead to security breaches
• Compromised insiders: Legitimate user accounts that have been taken over by external attackers

6. Data governance complexity

Data governance encompasses the policies and processes for managing data throughout its lifecycle in a financial organisation. Proper data governance involves classifying data by sensitivity and ensuring you handle, store, and delete it correctly.

Challenges include classifying large volumes of data, managing data that exists in different systems, and ensuring proper retention or disposal. Data sprawl occurs when information is spread across multiple platforms, making it difficult to track and secure.

7. Talent shortages in cyber security

There’s an ongoing shortage of qualified cyber security professionals in the financial service industry, and this is on a global scale.  

Financial organisations require specialists with knowledge of regulatory compliance, digital forensics, and secure systems design. 

A lack of skilled workers can leave gaps in security monitoring and incident response, and retaining experienced professionals is difficult due to high demand in the industry.

 

Four proven strategies that strengthen cyber security in financial services

1. Implement proactive threat detection

Threat detection and monitoring systems are tools that help organisations identify suspicious activity on their networks before it leads to data breaches or harmful incidents. These systems collect and analyse large amounts of data from many sources, such as user activity, network traffic, and system logs.

Security operations centres (SOCs) operate around the clock to monitor for cyber threats. Having monitoring that is active 24/7 makes it possible to detect attacks as they happen, including during evenings, weekends, and holidays, when attackers may believe defences are weaker.

2. Perform regular penetration testing

Penetration testing is a process where cyber security professionals simulate real-world cyber attacks to find vulnerabilities in systems, applications, or networks. 

Red team exercises are more advanced simulations, often involving a team that acts as attackers to test how well security controls and response processes work.

You can also ask an independent escort to carry out an external security assessment, which can uncover any weaknesses that internal teams might not notice. 

3. Train employees against phishing

Security awareness training programmes teach employees how to recognise cyber threats, such as phishing emails, and what steps to take if they encounter suspicious messages or activity.

These programmes are often ongoing, with updates to reflect the latest attack techniques.

For example, a phishing simulation exercise might use fake phishing emails to test if employees can spot and report them without falling for the scam. 

Results from these exercises identify knowledge gaps that enable management to provide targeted training.

4. Enforce rigorous access controls

Zero-trust architecture is a security model where no user or device is automatically trusted, even if it is inside the organisation’s network. Every request for access goes through a verification process before allowing entry to sensitive systems or data.

Multi-factor authentication (MFA) requires users to provide more than one form of identification, such as a password and a temporary code from a mobile app or text message. 

MFA helps prevent attackers from accessing accounts with stolen passwords.

 

Managing third-party and supply chain risks

Third-party risk management frameworks are structured ways to identify, assess, and control risks that come from relationships with vendors, service providers, or partners. 

These frameworks help financial organisations understand how working with outside companies can impact the security of their own data and systems.

A vendor security assessment examines the security practices of a vendor before and during a business relationship. It often includes reviewing documentation, conducting interviews, and sometimes running technical tests to check if vendors follow security standards that match the financial institution’s requirements.

Key steps in managing third-party and supply chain risks include:

• Due diligence: Evaluating a vendor’s security posture before signing any contracts, including checking for previous data breaches and reviewing security certifications
• Contractual obligations: Writing security requirements into contracts to ensure vendors agree to follow specific rules like regular security audits and using encryption
• Continuous monitoring: Performing ongoing checks to ensure vendors maintain agreed-upon security standards through audit reports and incident monitoring
• Incident response: Creating plans for how to respond if a vendor experiences a security incident, outlining communication and recovery procedures

 

Building long-term security resilience in financial services

As you can see, the seven critical data security challenges in the financial services industry are all closely connected. Each area can affect the others, and weaknesses in one can make it easier for attackers or make compliance more complicated elsewhere.

Addressing these challenges requires a comprehensive security strategy that covers people, processes, and technology. This means combining technical controls, such as encryption and monitoring, with ongoing employee training and clear data management policies.

Continuous improvement is a key part of building resilience. This process involves monitoring for new threats, adapting to regulatory changes, and regularly testing defences through exercises like penetration testing and simulated attacks.

At Zenzero, we understand the unique cybersecurity challenges facing financial services. Our team of experts provides tailored solutions including penetration testing, security assessments, and managed IT services to help financial institutions protect their critical data. Contact us to discuss how we can strengthen your security posture.

 

Frequently Asked Questions

How can smaller financial organisations secure data on limited budgets?

Smaller financial organisations can use basic security tools such as firewalls, strong passwords, and multi-factor authentication to protect data. 

Managed security provides advanced protection and monitoring without the costs of hiring a full-time IT team.

What role does employee training play in preventing financial data breaches?

Employee training helps staff recognise phishing emails and suspicious activity, which reduces accidental clicks and information leaks. Regular training reduces the risks of human error leading to a data breach. 

How do financial institutions balance security with customer experience?

Financial institutions use security features like secure logins and encryption while designing systems that are easy to use. Customers can enjoy convenience when accessing services, without worrying about their personal information. 

What should financial organisations look for in cyber security partners?

Key criteria include industry experience, understanding of financial regulations, proven track record, and the ability to provide tailored solutions. Cybersecurity partners with certifications and a focus on responsible practices are well-suited for supporting financial services.