Discovery Conference

Data Breaches Top List of Fraud Threats

Six steps to avoid devastating financial, reputation, and legal risks.

October 5, 2011

Data breaches have overtaken the theft of physical assets as the No. 1 fraud type, with most data theft occurring in the financial services industry, according to Ken Otsuka, senior risk consultant for CUNA Mutual Group.

To avoid crippling financial damage and loss of member trust, credit unions must implement measures to prevent data breaches and have a solid mitigation plan if one occurs.

Otsuka, addressing CUNA Mutual’s Online Discovery Conference Tuesday, cited the 2010 Annual Global Fraud Report by the risk management consulting firm, Kroll.

The study indicated the information-rich financial services industry led the way in data theft incidents at 42% in 2010, up from 24% in 2009.

“Data breaches have quickly become a top concern,” Otsuka said. “They are increasing in frequency and severity in terms of number of records breached and recovery costs.”

Breaches can involve electronic data or paper and occur in many ways, including:

  • Lost or stolen disks, laptops, and other data-bearing devices;
  • Dishonest employees;
  • System intrusions by hackers;
  • Negligent disposal of data; and
  • Breaches at third-party vendors housing confidential personal member data.

A data breach can be devastating for a credit union, Otsuka said. A 2010 Ponemon Institute study stated the average cost to repair a compromised record was $214. For financial institutions, that cost was $353.

Data breaches cost more than money. “A breach could shake members’ confidence in the credit union’s ability to protect their personal information, which could have a devastating effect on the credit union’s reputation,” Otsuka said.

Compliance and legal risks also loom. “The Gramm-Leach-Bliley Act requires credit unions to protect and secure members’ personal information,” he said. “Penalties for noncompliance, whether at the state or federal level, can be severe. In addition, numerous well-publicized lawsuits have been brought by consumers against organizations that experienced data breaches.”

Otsuka urged attendees to implement proper technology, policies, and procedures to protect confidential member data. He offered these tips:

  • Protect confidential member data residing anywhere on the network, including workstation hard drives and servers. Encrypt data residing on networks, all mobile devices, and in data transmissions over the Internet and e-mail.
  • Install a data loss prevention solution to identify where confidential member data is located on the network and determine if employees are inappropriately transmitting data via e-mail or downloading data to external devices.
  • Lock down USB ports and CD ROM/DVD drives on certain workstation computers, based on employee job duties, to prevent downloading of confidential member data.
  • Implement an identity and access management solution that allows only authorized users to access the network and secures remote access for employees and vendors.
  • Have an endpoint security solution to protect all entry points to the network, including firewalls, and software for viruses, malware, and intrusion detection.
  • Protect corporate mobile devices by ensuring confidential member data is stored in encrypted format, devices are password protected, and data can be wiped clean if the device is lost or stolen.

Otsuka advised having an insurance backstop, such as of CUNA Mutual Group’s Cyber & Security Incident Package, which provides coverage for credit unions in the event of a data breach.