CFTC Commissioner Calls for Strengthening Market Resilience Against Cybercrime and Climate Risks

CFTC Commissioner Christy Goldsmith Romero identified cybercrime and climate risk as severe threats to financial markets and called for collaborative action to strengthen resiliency in both areas.

In remarks at the FIA & SIFMA Asset Management Derivatives Forum, Ms. Goldsmith Romero warned that both issues are "flashing lights warning of serious dangers ahead." She emphasized the importance of building strong collaborative resiliency plans for both cyber- and climate-related risks to mitigate market disruptions and investor harm.

Cybercrimes and Cyber Resilience

Ms. Goldsmith Romero highlighted three major threats with respect to cybercrime: unknown and unpatched vulnerabilities, third-party service provider vulnerabilities, and ransomware vulnerabilities. Addressing the prevalence of cybercrime, Ms. Goldsmith Romero pointed to the fact that 74 percent of 130 global financial institutions surveyed in 2022 disclosed at least one ransomware attack in the previous year. She also identified common vulnerabilities, such as phishing attempts, outdated software and systems, remote connections and insider tricks. Expressing concern about the vulnerability of third-party service providers used by financial firms, Ms. Goldsmith Romero called for ongoing communications with, and due diligence of, third-party providers to understand their cybersecurity controls and weaknesses.

Ms. Goldsmith Romero stated that strengthening cyber resilience across financial markets is a shared responsibility and requires good "cyber hygiene." She emphasized the need for collaboration between the public and private sector to counter the rapidly evolving threat of cybercrime and mitigate vulnerabilities. Among recent agency efforts, Ms. Goldsmith Romero pointed to the CFTC's recently proposed rule to expand clearinghouse notification of cybersecurity incidents, and an effort she is leading to adapt and evolve the CFTC's cyber resilience framework for futures commission merchants and swap dealers. As to the latter, she said a proposed rule is forthcoming.

Climate Risk and Resilience

With respect to the growing concern about climate risk and its impact on commodities and derivatives markets, Ms. Goldsmith Romero addressed the importance of the CFTC in monitoring both physical and transition risks associated with the shift to a lower-carbon economy. Ms. Goldsmith Romero stated the increasing number and severity of extreme climate events is causing harm to infrastructure, supply chains, transportation and agricultural production, and has the potential to pose systemic risk to financial stability. She raised concerns about (i) the lack of transparency in the reporting of climate-related information and (ii) the need for standardization and agreed-upon taxonomies to ensure proper functioning of markets. She suggested that voluntary carbon credits present an opportunity to help manage climate-related risk.

Ms. Goldsmith Romero proposed three ways the CFTC can help mitigate climate risk:

• increasing enforcement resources and expertise to combat greenwashing and other forms of fraud in the derivatives markets and spot markets under the CFTC's jurisdiction;

• promoting market resilience to climate-related risk by monitoring climate-related financial risk and working with market intermediaries; and

• working with exchanges and market participants to ensure the integrity of derivatives markets and promoting responsible innovation in climate/sustainability products.