Why space weather poses a risk to the finance industry

The conventional risks to finance – interest rate changes, currency fluctuations or just the outcome of a non-binding referendum – are well known. But there is another factor that can affect banking and investment funds, which most of us are less aware of: “space weather”.

The consequences of living close to a dynamic star such as the sun – apart from it keeping our planet at just the right temperature to exist – are the eruptions and explosions it produces. These can can cause disturbances to the Earth’s magnetic field and atmosphere which can disrupt a wide range of technological systems that modern society relies on. These include the technology intrinsic to the finance industry.

In the 1800s, it was the telegraph system that was affected. It experienced disruptions to its operation and there were office fires as equipment started sparking during strong space weather storms. Since then, our use of technology has expanded and space weather can cause more damage as a result. Railways, electricity networks and radio communications are all vulnerable to space weather. And the advent of the space age, with our growing dependency on satellites for all forms of communication, has made the problem even more acute.

Artist’s illustration of events on the sun changing the conditions in near-Earth space. NASA Goddard Space Flight Center, CC BY
A wake-up call to the problem came when the Earth experienced a geomagnetic storm that caused Canada’s Hydro-Québec electricity grid to experience strong voltage fluctuations. This triggered the grid’s protection system and the entire network to shut down in less than two minutes. It left several million people without power and cost the economy CAN$6 billion.

Clearly there are risks for investment and retail banks, currency exchanges, investment funds, and insurance and real estate companies – which all rely on systems that are susceptible to space weather. To understand exactly how these risks manifest themselves, space weather experts have been coming together with those from the financial sector. From the discussions a realisation of just how many areas of these businesses could be affected emerged. A new report shows where these impacts may be felt and gives guidelines on how businesses can build resilience when it comes to the threat of space weather.

Understanding the risks

The origin of space weather lies in the atmosphere of the sun, which generates strong winds, big bursts of radiation, including X-rays and UV (solar flares), and eruptions of electrically charged gas and magnetic field (coronal mass ejections).

The first observation of a solar flare was made more than 100 years ago in 1859. The discovery of coronal mass ejections came much later, in the early 1970s. As well as emitting light and heat, the X-rays, high-energy particles and magnetic field that race towards the Earth disturb the Earth’s own magnetic field and, as well as generating beautiful auroras, induce electric currents where they may not be appreciated.

Lessons from the Hydro-Québec storm and the malfunctioning of satellites over the decades have helped us to understand the level of the risk there is from space weather and how to ward off its effects. National grids are being engineered to be more robust and daily space weather forecasts are issued for the hours and days ahead. The first step toward mitigating against the effects of space weather, is to keep track of it.

At a very basic level, a continuous and uninterrupted power supply is needed for the various systems that are used to make financial trading more profitable and our personal finances increasingly paperless. But during some extreme space weather events, showers of high-energy particles and the radiation from solar flares can affect key systems. This can hinder the processing of the extremely high volume of transactions – the transfer of stocks, shares or money for example. The synchronised timing of transactions is imperative and the time stamp often comes from global positioning satellites, the signals of which can be affected by space weather.

At a more basic level, space weather can also affect air travel, an increasingly normal function of many businesses. The interruption it can cause to radio communications can cause flights to be disrupted, diverted or even cancelled.

Now that the vulnerabilities are being identified, a range of solutions can be developed. Companies have crisis management teams in place and space weather can be planned for, too. In-house exercises can be run to identify what space weather effects are important to each particular business, and processes can be built or extended accordingly.

So don’t be alarmed by space weather, but equally don’t forget its hidden influence over your day-to-day activities and the glitches in can cause in the technological systems we rely on.