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Schneier on Security: Blog Entries Tagged banking

Schneier on Security

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Entries Tagged “banking”

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On Financial Fraud

There are some good lessons in this article on financial fraud:

That's how we got it so wrong. We were looking for incidental breaches of technical regulations, not systematic crime. And the thing is, that's normal. The nature of fraud is that it works outside your field of vision, subverting the normal checks and balances so that the world changes while the picture stays the same. People in financial markets have been missing the wood for the trees for as long as there have been markets.

[..]

Trust -- particularly between complete strangers, with no interactions beside relatively anonymous market transactions -- is the basis of the modern industrial economy. And the story of the development of the modern economy is in large part the story of the invention and improvement of technologies and institutions for managing that trust.

And as industrial society develops, it becomes easier to be a victim. In The Wealth of Nations, Adam Smith described how prosperity derived from the division of labour -- the 18 distinct operations that went into the manufacture of a pin, for example. While this was going on, the modern world also saw a growing division of trust. The more a society benefits from the division of labour in checking up on things, the further you can go into a con game before you realise that you're in one.

[...]

Libor teaches us a valuable lesson about commercial fraud -- that unlike other crimes, it has a problem of denial as well as one of detection. There are very few other criminal acts where the victim not only consents to the criminal act, but voluntarily transfers the money or valuable goods to the criminal. And the hierarchies, status distinctions and networks that make up a modern economy also create powerful psychological barriers against seeing fraud when it is happening. White-collar crime is partly defined by the kind of person who commits it: a person of high status in the community, the kind of person who is always given the benefit of the doubt.

[...]

Fraudsters don't play on moral weaknesses, greed or fear; they play on weaknesses in the system of checks and balances -- the audit processes that are meant to supplement an overall environment of trust. One point that comes up again and again when looking at famous and large-scale frauds is that, in many cases, everything could have been brought to a halt at a very early stage if anyone had taken care to confirm all the facts. But nobody does confirm all the facts. There are just too bloody many of them. Even after the financial rubble has settled and the arrests been made, this is a huge problem.

Posted on July 25, 2018 at 6:29 AMView Comments

Perverse Vulnerability from Interaction between 2-Factor Authentication and iOS AutoFill

Apple is rolling out an iOS security usability feature called Security code AutoFill. The basic idea is that the OS scans incoming SMS messages for security codes and suggests them in AutoFill, so that people can use them without having to memorize or type them.

Sounds like a really good idea, but Andreas Gutmann points out an application where this could become a vulnerability: when authenticating transactions:

Transaction authentication, as opposed to user authentication, is used to attest the correctness of the intention of an action rather than just the identity of a user. It is most widely known from online banking, where it is an essential tool to defend against sophisticated attacks. For example, an adversary can try to trick a victim into transferring money to a different account than the one intended. To achieve this the adversary might use social engineering techniques such as phishing and vishing and/or tools such as Man-in-the-Browser malware.

Transaction authentication is used to defend against these adversaries. Different methods exist but in the one of relevance here -- which is among the most common methods currently used -- the bank will summarise the salient information of any transaction request, augment this summary with a TAN tailored to that information, and send this data to the registered phone number via SMS. The user, or bank customer in this case, should verify the summary and, if this summary matches with his or her intentions, copy the TAN from the SMS message into the webpage.

This new iOS feature creates problems for the use of SMS in transaction authentication. Applied to 2FA, the user would no longer need to open and read the SMS from which the code has already been conveniently extracted and presented. Unless this feature can reliably distinguish between OTPs in 2FA and TANs in transaction authentication, we can expect that users will also have their TANs extracted and presented without context of the salient information, e.g. amount and destination of the transaction. Yet, precisely the verification of this salient information is essential for security. Examples of where this scenario could apply include a Man-in-the-Middle attack on the user accessing online banking from their mobile browser, or where a malicious website or app on the user's phone accesses the bank's legitimate online banking service.

This is an interesting interaction between two security systems. Security code AutoFill eliminates the need for the user to view the SMS or memorize the one-time code. Transaction authentication assumes the user read and approved the additional information in the SMS message before using the one-time code.

Posted on June 20, 2018 at 6:51 AMView Comments

Regulating Bitcoin

Ross Anderson has a new paper on cryptocurrency exchanges. From his blog:

Bitcoin Redux explains what's going wrong in the world of cryptocurrencies. The bitcoin exchanges are developing into a shadow banking system, which do not give their customers actual bitcoin but rather display a "balance" and allow them to transact with others. However if Alice sends Bob a bitcoin, and they're both customers of the same exchange, it just adjusts their balances rather than doing anything on the blockchain. This is an e-money service, according to European law, but is the law enforced? Not where it matters. We've been looking at the details.

The paper.

Posted on June 5, 2018 at 6:32 AMView Comments

TSB Bank Disaster

This seems like an absolute disaster:

The very short version is that a UK bank, TSB, which had been merged into and then many years later was spun out of Lloyds Bank, was bought by the Spanish bank Banco Sabadell in 2015. Lloyds had continued to run the TSB systems and was to transfer them over to Sabadell over the weekend. It's turned out to be an epic failure, and it's not clear if and when this can be straightened out.

It is bad enough that bank IT problem had been so severe and protracted a major newspaper, The Guardian, created a live blog for it that has now been running for two days.

The more serious issue is the fact that customers still can't access online accounts and even more disconcerting, are sometimes being allowed into other people's accounts, says there are massive problems with data integrity. That's a nightmare to sort out.

Even worse, the fact that this situation has persisted strongly suggests that Lloyds went ahead with the migration without allowing for a rollback.

This seems to be a mistake, and not enemy action.

Posted on April 27, 2018 at 6:00 AMView Comments

Bank Robbery Tactic

This video purports to be a bank robbery in Kiev. He first threatens a teller, who basically ignores him because she's behind bullet-proof glass. But then the robber threatens one of her co-workers, who is on his side of the glass. Interesting example of a security system failing for an unexpected reason.

The video is weird, though. The robber seems very unsure of himself, and never really points the gun at anyone or even holds it properly.

Posted on August 14, 2017 at 6:03 AMView Comments

The Economist on Hacking the Financial System

The Economist has an article on the potential hacking of the global financial system, either for profit or to cause mayhem. It's reasonably balanced.

So how might such an attack unfold? Step one, several months before mayhem is unleashed, is to get into the system. Financial institutions have endless virtual doors that could be used to trespass, but one of the easiest to force is still the front door. By getting someone who works at an FMI or a partner company to click on a corrupt link through a "phishing" attack (an attempt to get hold of sensitive information by masquerading as someone trustworthy), or stealing their credentials when they use public Wi-Fi, hackers can impersonate them and install malware to watch over employees' shoulders and see how the institution's system functions. This happened in the Carbanak case: hackers installed a "RAT" (remote-access tool) to make videos of employees' computers.

Step two is to study the system and set up booby traps. Once in, the gang quietly observes the quirks and defences of the system in order to plan the perfect attack from within; hackers have been known to sit like this for years. Provided they are not detected, they pick their places to plant spyware or malware that can be activated at the click of a button.

Step three is the launch. One day, preferably when there is already distracting market turmoil, they unleash a series of attacks on, say, multiple clearing houses.

The attackers might start with small changes, tweaking numbers in transactions as they are processed (Bank A gets credited $1,000, for example, but on the other side of the transaction Bank B is debited $0, or $900 or $100,000). As lots of erroneous payments travel the globe, and as it becomes clear that these are not just "glitches", eventually the entire system would be deemed unreliable. Unsure how much money they have, banks could not settle their books when markets close. Settlement is a legally defined, binding moment. Regulators and central banks would become agitated if they could not see how solvent the nation's banks were at the end of the financial day.

In many aspects of our society, as attackers become more powerful the potential for catastrophe increases. We need to ensure that the likelihood of catastrophe remains low.

Posted on July 25, 2016 at 6:10 AMView Comments

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Schneier on Security is a personal website. Opinions expressed are not necessarily those of IBM Resilient.