The world’s largest bank, Industrial & Commercial Bank of China (ICBC), was hit by a ransomware attack on Thursday, disrupting some systems at its ICBC Financial Services unit and forcing it to send settlement details for US Treasury trades via USB stick. The attack is the latest to snarl parts of the global financial system and emphasizes the need for central clearing in the $26 trillion US Treasury market.
The attack caused instantaneous disturbance as market-makers, brokerages and banks were forced to redirect trades, with many uncertain when access would resume. The Securities Industry and Financial Markets Association (Sifma) held calls with members about the stuff on Thursday.
ICBC FS offers fixed-income payment, Treasuries buy-back lending and some equities securities lending. The unit had about $23.5 billion of assets at the end of 2022. It is unsure to what extent the disruption affected the US Treasury market, but liquidity was apparently affected.
The attack is a reminder of the growing threat of cyberattacks to the global financial system. In August, ION Trading UK, a little-known company that serves derivatives traders worldwide, was hit by a ransomware attack that paralyzed markets and forced trading shops that clear hundreds of billions of dollars of transactions a day to process deals manually.
The ICBC attack also features the benefits of central clearing in the US Treasury market. Central clearing platforms are intermediaries between buyers and sellers that assume accountability for completing transactions and therefore prevent a default of one counterparty from causing extensive problems in the marketplace.
Stanford University finance professor Darrell Duffie said that the ICBC incident is “one example of why central clearing in the US Treasuries market is a very good idea.” He added that “had a similar problem occurred in a not-clearing firm, it’s not clear how the default risk that might result would propagate through the market.”
The Securities and Exchange Commission (SEC) is currently working to reduce risks in the financial system with a raft of proposals that include mandating central clearing of all US Treasuries. The SEC’s proposals are expected to be finalized in the coming months.