Regulatory Challenges for Banks in Cyber Threats

Financial institutions face 300 times more cyber attacks than other industries. As threats escalate, banks must navigate increasingly complex regulatory requirements whilst maintaining operational efficiency and customer trust. For European institutions, compliance is no longer a box-ticking exercise but an essential component of cybersecurity strategy

The Evolving Regulatory Landscape

PSD2 has transformed authentication requirements through Strong Customer Authentication (SCA), mandating multi-factor verification for electronic payments. Its open banking framework simultaneously increases security demands and competitive pressure.

PSD3, building on PSD2, expands the scope to address emerging threats and technologies, particularly focusing on enhanced fraud prevention mechanisms and expanding third-party provider regulations to incorporate new payment technologies.

NIS2 Directive strengthens cybersecurity requirements across the EU, categorising banks as essential entities subject to stricter compliance obligations. It mandates comprehensive risk management measures, incident reporting protocols, and enforces significant penalties for non-compliance.

DORA Regulation (Digital Operational Resilience Act) establishes a unified framework for digital operational resilience, requiring financial entities to implement robust ICT risk management frameworks, conduct regular testing, and manage third-party ICT risks systematically.

GDPR continues to govern data protection with significant penalties for non-compliance. Its requirements directly impact how banks implement cybersecurity measures through data minimisation principles.

Key Regulatory Challenges

Regulatory fragmentation creates complexity for institutions operating across multiple jurisdictions. Banks must reconcile varying interpretations whilst maintaining unified security protocols.

The innovation-security paradox poses another significant hurdle. As regulations promote innovation, they simultaneously require enhanced security measures that can create friction in customer experiences.

Resource-intensive compliance demands substantial investment in technology and expertise. Many institutions struggle to maintain specialist knowledge required to interpret evolving regulations.Rapid technological change means regulatory frameworks often lag behind both threats and solutions. Banks must anticipate regulatory direction rather than simply following established rules.

Innovative Solutions

Forward-thinking institutions are turning to behavioural verification technologies to address these challenges effectively. Unlike traditional authentication methods, behavioural verification offers continuous security that aligns with regulatory requirements without compromising user experience.

These solutions can:

• Detect anomalies indicating potential fraud in real-time
• Provide ongoing authentication beyond initial login
• Reduce false positives
• Create comprehensive audit trails for regulatory reporting

Implementation Success

A leading European bank implementing behavioural verification technology experienced a 37% reduction in fraud attempts while simultaneously reducing customer friction. Their approach integrated behavioural biometrics with existing authentication methods, creating a layered security approach that satisfied both regulatory requirements and customer needs.

Key Takeawayscy

1. Adopt continuous authentication methods that go beyond point-in-time verification
2. Invest in AI-driven fraud detection capable of adapting to emerging threats
3. Establish cross-functional compliance teams with both technical and regulatory expertise
4. Participate in regulatory sandboxes to test new approaches safely
5. Develop robust vendor assessment frameworks for evaluating cybersecurity partners

As cyber threats evolve, banks must transform regulatory compliance from burden to strategic advantage. By embracing technologies like behavioural verification, financial institutions can meet current requirements while positioning advantageously for future developments. The most successful will view compliance not as a cost centre but as an opportunity to enhance security, improve experiences, and build lasting trust.