Regulatory demands are becoming more complex as multinational tech giants dominate the market. Additionally, data security, cyber threats, and the economic impact of COVID-19 have created further challenges for Europe’s financial sector. In response, regulators are introducing innovative strategies to streamline regulations, bolster data security, and enhance operational resilience.
Despite the benefits offered by digital transformation in the financial sector, there’s mounting apprehension that the increasing dependance on digital technologies poses risks that threaten the stability of the entire financial system.
The Digital Operational Resilience Act (DORA) is a European Union (EU) regulation, also known as Regulation (EU) 2022/2554. It sets a new standard for information and communication technology (ICT) risk management within the financial sector, calling for frameworks that can weather the storm of cyber threats and technological disruptions.
At its core, DORA is about strengthening stability, building a financial ecosystem that’s as resilient as it is dynamic. For EU financial institutions, successfully implementing DORA to meet compliance requirements means more than just avoiding penalties — it’s an opportunity to improve defences, enhance cyber threat reporting capabilities, and ensure operations can bounce back no matter what comes.
Read on as we break down the essentials of Regulation (EU) 2022/2554, from the ins and outs of ICT risk management to the nuances of operational resilience and the specifics of cyber threat reporting.
What is DORA?
Financial institutions have become increasingly reliant on information and communication technologies (ICT). Despite myriad benefits, this shift to digital-first communication, like email and file-sharing, has exposed the financial sector to heightened ICT risks. That’s where the Digital Operational Resilience Act (DORA) comes in as a piece of legislation designed to fortify the EU’s financial entities against digital disruptions.
DORA emerged from a growing recognition of the need for a unified regulatory framework that addresses the financial sector’s digital vulnerabilities. Prior to the Digital Operational Resilience Act (DORA), businesses in the EU primarily managed operational risks through capital allocation for worst-case scenarios, without a comprehensive strategy for tackling all facets of operational resilience — especially ICT-related threats. DORA marks a pivotal shift, forcing financial institutions to enhance their capabilities in protecting, detecting, containing, and recovering from ICT-related incidents.
One requirement of the Digital Operational Resilience Act (DORA) includes reporting major ICT-related incidents — events like data breaches, cyberattacks, or system outages that impact information and communication technology systems — to competent authorities using standardized templates. Reporting frequency depends on the severity of the incident, with immediate alerts for critical events and periodic updates until resolution.
Regular internal audits of your ICT risk management framework are essential, and third-party providers supporting critical functions must also meet DORA standards. Non-compliance can lead to fines and reputational damage. With Resolver’s solutions, you can ensure accurate reporting, seamless audits, and improved operational resilience, avoiding penalties while building trust with customers and regulators.
Read more: EU’s New AMLA Initiative: Strengthening the Fight Against Financial Crime
The 5 pillars of DORA
Regulation (EU) 2022/2554, or EU’s Digital Operational Resilience Act (DORA), has introduced a structured approach to help enhance your business’s ICT agility. Built around five key pillars aimed at bolstering the ICT risk management frameworks of financial entities, DORA’s architecture includes:
1. ICT risk management
Financial entities are required to develop, implement, and maintain resilient ICT systems and protocols, such as secure networks, encrypted databases, and regular system backups. By establishing a thorough risk assessment process, you can identify potential vulnerabilities within your digital operations. The goal is to not just react to incidents but to proactively manage and mitigate ICT risks. Crafting a clear ICT risk management strategy ensures you are prepared for, and can quickly respond to, disruptions and threats.
2. Cyber incident reporting and response
Under DORA, swiftly and efficiently reporting ICT-related incidents becomes mandatory. You need to have mechanisms in place for immediate incident detection and reporting, such as Incident Management Software. These reports should not only reach internal management but also relevant EU authorities, ensuring that all parties are informed and can act promptly to mitigate any damage. Cyber incident reporting helps in building a transparent culture where managing cyber risks is seen as a shared responsibility.
3. Operational resilience testing
Regulation (EU) 2022/2554 mandates a comprehensive testing regime that includes both basic and advanced methods, such as threat-led penetration tests. These exercises help you understand the effectiveness of your current risk management frameworks and identify areas for improvement. Regular testing ensures that your financial institution can withstand and quickly recover from operational disruptions caused by ICT failures.
4. Third-party risk management
Given the increasing reliance on third-party ICT service providers, Regulation (EU) 2022/2554 emphasizes the need to manage and monitor these relationships closely. Third-party providers must comply with DORA’s resilience requirements, including revising contracts and enhancing oversight mechanisms. These requirements include regular risk assessments, stringent incident reporting, and periodic operational resilience testing. All technology providers, whether critical or not, must adhere to these standards to ensure comprehensive compliance.
5. Information sharing
The Digital Operational Resilience Act (DORA) encourages a collaborative environment where financial entities and their ICT providers— including cloud service companies and software vendors — share information regarding cyber incidents and vulnerabilities. This mutual exchange is vital for staying ahead of potential threats and fortifying the sector’s overall digital resilience. By sharing knowledge and strategies, you contribute to and benefit from a collective strengthening of operational resilience across the financial industry.
How the Digital Operational Resilience Act (DORA) impacts the financial sector
DORA brings significant regulatory changes to improve the digital operational resilience of financial institutions. The regulation aims to mitigate the rising ICT risks due to increasing reliance on third-party service providers and ensure that the financial sector can withstand and recover quickly from cyber incidents. By focusing on financial institutions, DORA seeks to protect a critical part of the economy from disruptions that could have widespread consequences.
Compliance with the Digital Operational Resilience Act (DORA) requires financial entities to:
- Systematic risk assessments: Conducting detailed and regular risk assessments that not only pinpoint potential threats, but also devise robust strategies to mitigate them before they affect your operations.
- Enhanced cybersecurity measures: Fortify your defences with integrating advanced technologies and methodologies to protect against and quickly respond to cyber incidents.
- Resilience testing: Regular systems testing to simulate potential disruptions is now a must. These drills will help you identify weaknesses in your IT infrastructure and refine your response strategies.
- Business continuity planning: Updating and adapting business continuity plans ensures critical functions under all conditions are maintained. Doing so is key to sustaining customer trust and regulatory compliance.
- Contractual revisions: Revisiting and potentially renegotiating contracts to include DORA-compliant terms and conditions. It also promotes resilience and security as key components of all third-party engagements.
- Proactive reporting: Establishing clear protocols for rapid incident reporting to relevant authorities. Doing so ensures that the wider financial ecosystem can respond more effectively to emerging threats.
- Collaborative defence: Sharing threat intelligence and best practices is encouraged to strengthen the collective financial sector’s resilience.
Also read: UK SOX? Navigating Great Britain’s Upcoming Regulatory Changes
As the Digital Operational Resilience Act (DORA) redefines EU financial regulatory expectations and deliverables, Resolver is here to help you adapt to and comply with these new rules with ease. Our Risk Intelligence Platform empowers you to efficiently manage ICT-related incidents and meet Regulation (EU) 2022/2554 requirements. From comprehensive risk assessments to seamless incident reporting, our platform provides the tools you need to navigate these new regulations.
Watch the replay of our webinar, “Navigating DORA: Preparing for the EU’s New Operational Resilience Regulation,” to learn practical insights and strategies to stay ahead.
With Resolver, you can confidently meet compliance demands while also enhancing the resilience and security of your institution. See for yourself by requesting a no-commitment demo today, or scroll down and sign up for our newsletter to stay up-to-date on how Resolver’s solutions facilitate compliance with DORA.
