Independent Network Testing Requirements And Recommendations

Community financial institutions face a current environment where cyberattacks are increasingly sophisticated and persistent.  While all financial institutions, by their nature, represent attractive targets for malicious actors, community institutions confront unique challenges. Unlike their larger counterparts, community institutions often operate with tighter budgets, smaller IT teams, and legacy infrastructure.  These factors can create exploitable gaps in security. To mitigate these risks and uphold the trust of their customers, it is critical that community financial institutions invest in independent network vulnerability assessments and penetration testing.  

NETBankAudit has partnered with over 800 organizations, largely community financial institutions with a wide range of network environments in terms of their structure and complexity, to assess and enhance their network security posture.  Our experience with diverse environments and circumstances provides a unique perspective which we are happy to share with our clients and others.  This article summarizes our observations and recommendations for internal and external network testing and related best practices.

The Unique Risk Landscape for Community Financial Institutions

While larger financial institutions may seem like the more likely targets, community institutions are often seen by cybercriminals as the more vulnerable ones.  Similar to their larger counterparts, community institutions typically hold significant customer data and financial assets but may lack the security posture to deter sophisticated attacks. Phishing campaigns, ransomware, and unauthorized access attempts are frequent threats, and even a minor breach can have severe consequences, both financially and reputationally.

Network Testing Scope and Coverage

Network testing activities vary significantly by their scope of coverage and depth.  Testing coverage is distinguished by several factors, which include the following: Environment (i.e., internal vs. external), Scope/Objective (i.e., vulnerability assessment vs. penetration test), and Independence (i.e., in-house vs. third party).  Each of these factors is discussed in more detail below. 

Environment – Internal and External Network Testing

External network testing simulates an outside attack such as what a hacker might try from outside the organization’s network. The goal is to find vulnerabilities in Internet-facing systems (e.g., public websites, email servers, VPNs, or anything accessible from the outside world).  Key objectives include the following: identify open ports and services exposed to the Internet; test for weaknesses in firewalls and perimeter defenses; attempt to exploit web-facing applications; and assess whether bad actors can gain initial access.  For community financial institutions, customer trust is essential. A breach of public-facing systems can lead to data exposure, service disruption, and regulatory scrutiny. External testing helps close the doors before attackers try to walk through them.

Internal network testing assumes the attacker is already inside.  Such may occur through phishing, malware, or even a rogue employee. This test examines how far they could get if they breached the perimeter. Key objectives include the following:  map internal assets and systems; identify misconfigured or outdated software; check for weak passwords or access controls; simulate lateral movement (spreading through the network); and test data access privileges and exfiltration paths.  Even small institutions are targets for internal threats, whether accidental or intentional. Internal testing helps to identify risks that traditional perimeter defenses cannot address.

Both the external and internal environments require regular testing. Relying on just one type of test is like locking the front door but leaving the windows open. Community financial institutions handle sensitive data and are held to strict compliance standards. Regulators increasingly expect layered security, and that includes regular internal and external testing.

Scope/Objective

Network vulnerability testing, often called a vulnerability scan, is an automated process that identifies known weaknesses in the institution’s systems. It scans network devices, servers, and other endpoints for security gaps such as outdated software, misconfigured systems, missing patches, and default passwords.  The objective is to create a list of vulnerabilities that could be exploited if left unaddressed.  This type of test should be performed as an authenticated tested to ensure that the list of vulnerabilities is complete and the organization does not have a false sense of security.  While vulnerability scans are cost effective and efficient, it is noted that they stop at identification. They do not test whether those flaws can actually be exploited in the real world.  

Penetration testing is more aggressive and more realistic. Instead of just listing vulnerabilities, a penetration tester acts like a hacker, trying to exploit them. The exercise is in part a technical test and in part an ethical hacking test.  Penetration tests simulate real-world attacks to answer questions like: Can someone breach our network through this exposed port?  If an attacker gets in, how far can they go? Can they access sensitive data or compromise user accounts?  There are different types of penetration tests (e.g., external, internal, social engineering, etc.), but all are designed to test not just the institution’s systems, but the security team’s response.

Community financial institutions should treat vulnerability testing as a regular hygiene practice. Penetration testing, on the other hand, should be done at least annually, or when the institution makes major changes to its systems. Together, they form a well-rounded defense.  Specifically, vulnerability testing shows what needs fixing whereas penetration testing shows why it matters.

Independence

Many community financial institutions conduct testing using internal IT teams or through services offered by their core or managed network provider. This approach is convenient and often cost-effective; however, it has certain limitations.  Advantages include familiarity with the environment, lower upfront costs, quick turnaround times, and integration with existing systems.  However, disadvantages include potential conflicts of interest, limited threat emulation, and compliance concerns due to the lack of independence.

Independent testing is performed by external cybersecurity or audit firms with no stake in the institution’s design or management. This includes penetration tests, vulnerability assessments, and audits conducted by credentialed professionals.  Advantages include unbiased results, broader expertise, strong compliance posture due to independence, and enhanced risk visibility.  However, disadvantages include potentially higher cost, additional coordination requirements, and required responses to unexpected findings.  

Regulators have stated that independent testing isn’t optional for certain types of reviews. The FFIEC agencies all emphasize the importance of independent assessments, especially for high-risk systems and controls. If the institution is relying solely on internal or network-provided testing, it may not be enough to demonstrate due diligence during an exam.

Recommendations for Network Testing Strategies

All community financial institutions should establish a formal program and schedule for network testing that encompasses the internal and external environments and includes a combination of vulnerability assessments and penetration tests that are performed by both in-house and third-party testers.  Specifically, the following steps should be implemented to ensure that the institution’s network environment is appropriately tested.

• Establish a Risk-Based Testing Plan: Start with a clear understanding of the institution’s risk profile. Prioritize testing based on: 
  
  • Asset sensitivity (e.g., core banking systems, customer data).
  • Known threats (ransomware, phishing, credential stuffing).
  • Regulatory requirements (FFIEC guidance).
• Build a formal testing schedule around the risk assessment, focusing more frequent and intensive testing on high-value targets.‍
• Use a Layered Testing Approach: No single test catches everything. Combine these types:
  • Vulnerability Scanning: Run automated scans regularly (at least monthly) to identify known weaknesses.
  • Penetration Testing: Conduct external and internal pen tests annually, or more often if there are major changes to the network or systems.
  • Configuration Reviews: Check firewalls, routers, and switches for misconfigurations that could expose sensitive systems.
  • Social Engineering Tests: Test employees’ responses to phishing emails and unauthorized access attempts. Awareness training is only effective if it is tested.‍
• Use Qualified Third Parties: Engage independent, qualified vendors to run penetration tests and audits. Third-party testers bring fresh eyes, current threat knowledge, and help meet regulatory expectations. Make sure they provide a detailed report with findings, severity ratings, and actionable remediation steps.‍
• Integrate Testing with Incident Response: Testing is not just about finding a potential flaw.  The objective is to improve how the institution responds. After each test:
  • Review results with technical and business leaders.
  • Update incident response plans based on findings.
  • Document what’s been fixed and what’s outstanding.‍
• Keep the Board and Executives Informed: Cybersecurity is a business risk, not just an IT issue. Provide leadership with:
  • Summaries of recent test results.
  • Key risks discovered.
  • Remediation timelines.
  • Trends over time.‍
• Test Continuously, Not Just Annually: Annual audits alone no longer suffice, and additional provisions are warranted:
  • Adopt continuous monitoring and regular mini-tests. 
  • Set up alerting for suspicious activity. 
  • Review logs routinely, leveraging automated tools and manual processes.  ‍
• Document Everything: Regulators will ask for evidence of test plans, results, remediation steps, and follow-up actions. Good documentation shows that the institution is taking cybersecurity seriously and can withstand scrutiny during exams.

For community financial institutions, strong network security does not mean spending like a larger organization.  It means being disciplined, consistent, and strategic about testing. When done right, regular security testing will detect areas of potential weakness, identify opportunities for strengthening defenses, and support the goal of maintaining the security infrastructure that is necessary to maintain customer confidence and meet regulatory expectations.