New Delhi: Cyberattacks targeting critical financial institutions and market infrastructure could disrupt essential financial services and undermine market confidence, the International Monetary Fund (IMF) has warned, identifying cyber threats as a growing systemic risk as financial services become increasingly digital and interconnected.

In its latest report, the IMF said the potential impact of successful cyberattacks could be severe, particularly if disruptions affect major banks, payment systems or other critical financial infrastructure.

The report highlighted the growing role of advanced artificial intelligence (AI) models in cyber threats, noting that they could be used to strengthen both attacks and defensive capabilities.

"Frontier AI models are emerging as both powerful enablers of cyberattacks and critical defensive tools," the IMF said.

The report identified cyber threats as one of three major risks that could trigger a sharp tightening of financial conditions and market turmoil, alongside a possible correction in AI-related asset prices and a sharp rise in sovereign bond yields. It assessed the trend in cyber risks as worsening.

The IMF said rapid digitalisation had expanded the potential points of attack for financial institutions, which increasingly depend on interconnected technologies, cloud services, external providers and real-time payment and settlement systems.

It also flagged risks arising from the growing dependence on a small number of critical technology providers. Complex and sometimes unclear links between third-party service providers could create common points of failure across financial institutions, the report said.

The growing sophistication of cyber threats is adding to these concerns. "State-sponsored actors, ransomware groups, and insiders now have access to increasingly powerful tools, including frontier AI models that have demonstrated strong capabilities in network-attack simulations", the IMF said.

A major attack affecting payments, trading or access to deposits could cause immediate losses and weaken confidence in the financial system. Disruption at a critical institution or service provider could also spread through operational and financial links, affecting the supply of credit and other financial services.

The IMF called for stronger cybersecurity capabilities, better reporting of incidents, closer oversight of third-party risks and greater operational resilience. It also stressed the need to maintain continuity of critical financial services.

The report said these risks may not independently threaten financial stability but could become systemic when amplified by existing vulnerabilities, potentially causing serious economic damage. (ANI)