Report highlights quantum threat to US financial system
In a detailed report published earlier this month, the Hudson Institute takes a deep dive into the threat posed by quantum computing to financial infrastructure in the US. Co-authored by Alexander Butler and Arthur Herman (both members of the Quantum Alliance Initiative), the report is titled Prosperity at Risk: The Quantum Computer Threat to the US Financial System.
Recognizing the threat
The authors, and other contributors, recognise the risk represented by the arrival of the quantum computer. Despite potential improvements in service delivery throughout the financial sector, the biggest concern is the threat posed by ‘quantum decryption’.
Acknowledging the Biden administration’s progress in quantum readiness, the authors point out that the scope of the government initiative does not extend to the private sector, in particular those industries categorized as critical infrastructure, which include the financial services sector.
Systemic cyber risk
The interconnected nature of banking and financial services networks, combined with their reliance on digital security and the centralized nature of their operations, makes them vulnerable to systemically disruptive attacks. Since the COVID pandemic, many firms have adopted remote working practices which significantly increase the threat surface and expose financial infrastructure to myriad risks.
The authors point to the historic impact of cyberattacks on the financial services sector and share some fairly grim projections as to the potential impact of a financial contagion event. Specifically, the report details the potential impact of an attack on the Fedwire Funds Service (a real-time gross settlement system provided by the US Federal Reserve); dedicating an entire chapter to what an attack might look like. Liquidity issues, payment failures and compliance breaches would be commonplace. The report goes so far as to say the financial impact would be enough to plunge the economy into another great depression.
Risk management and mitigation
There is some concern that, without a properly coordinated effort between government and the private sector, financial institutions will underinvest in cybersecurity and expose critical infrastructure to the quantum decryption threat.
The report recognises the role that quantum technologies will play in providing resilience against the quantum computer threat. In addition to the emerging standards for post-quantum cryptography coming out of NIST it profiles what it calls “entanglement-based cryptographic methods” – including quantum key distribution and quantum random number generation – and acknowledges the “novel capabilities” they provide in improving today’s security protocols.
The authors point to historic migration efforts, such as the initial adoption of AES standards, and recognise widespread adoption of quantum resilient technologies could be a protracted process. Consequently, they advocate for the rapid introduction of a four-step program to secure US financial systems:
- Adoption of, and migration to, the new PQC standards – with a clearly defined timeline for implementation or replacement of legacy systems.
- An immediate summit, called by the chair of the Federal Reserve, involving America’s largest banks and financial institutions – to establish a roadmap for quantum security.
- Congress to set a deadline for all federal reserve banks to become quantum secure.
- Creation of a quantum security taskforce to oversee the implementation and timeline.
The Quantum Alliance Initiative
Established in 2018, the QAI has a clear mandate: “to develop and champion policies that allow the US and its allies to win the race to a universal quantum computer, while simultaneously working to ensure that both will be safe from a future quantum computer cyberattack within five years”. Now at that 5-year landmark, the QAI has been instrumental in advancing policies that will help keep the US and its Five Eyes intelligence partners at the vanguard of quantum technology research and development.
IDQ is a founder member of the QAI and a regular contributor to workgroups. For more information, visit the Quantum Alliance Initiative website. You may also be interested in a previous report, featuring contributions from the IDQ team: The Executives Guide to Quantum Cryptography