Maintaining resilience and reliability is essential in the continually changing realm of digital operations. The Digital Operational Resilience Act (DORA) plays a vital role in strengthening the European Union’s (EU) digital infrastructure.
Let’s explore DORA its key objectives, scope, compliance requirements, penalties for non-compliance, and its implications for businesses.
Understanding Digital Operational Resilience Act Regulation
The Digital Operational Resilience Act is a legislative framework proposed by the European Commission to bolster the resilience of the EU’s financial sector against cyber threats and operational failures. It is an EU regulation that came into force on 16 January 2023 and will be applicable from 17 January 2025. It serves as a response to the growing reliance on digital technologies and the escalating risks associated with cyber incidents.
What are the Key Objectives
| ICT Risk Management | It establishes a comprehensive ICT risk management framework for the EU financial sector. It harmonises rules related to operational resilience across 20 different types of financial entities and ICT third-party service providers. |
| Third-Party Risk Management | The regulation emphasises monitoring and managing risks posed by third-party service providers. Financial entities must ensure that their third-party relationships do not compromise operational resilience. |
| Digital Operational Resilience Testing | It mandates both basic and advanced testing to assess the operational resilience of financial entities. This includes evaluating their ability to withstand cyber incidents. |
| Reporting of ICT-Related Incidents | Financial institutions must report major ICT-related incidents to competent authorities promptly. Streamlined reporting ensures better oversight and response. |
| Information Sharing | It encourages the exchange of information and intelligence on cyber threats. Collaborative efforts enhance the sector’s overall resilience. |
| Oversight of Critical Third-Party Providers | The regulation establishes an oversight framework for critical ICT third-party providers, ensuring their compliance with operational resilience requirements. |
What is its Scope
DORA encompasses all financial institutions operating within the EU, spanning from conventional entities like banks, investment firms, and credit institutions to non-traditional ones like crypto-asset service providers and crowdfunding platforms.
Remarkably, It extends its reach to include certain entities often exempt from financial regulations. This includes third-party service providers offering ICT systems and services to financial firms, such as cloud service providers and data centres, who are obligated to adhere to DORA standards. Additionally, It applies to firms offering crucial third-party information services like credit rating services and data analytics providers.
Compliance Requirements
Compliance with DORA entails several key obligations:
| Risk Management | Financial entities must implement robust risk management frameworks to identify, assess, and mitigate cyber risks and operational disruptions. |
| Incident Reporting | Prompt reporting of significant cyber incidents and operational disruptions to competent authorities is mandatory under DORA to facilitate coordinated responses and minimise the impact on the financial system. |
| Outsourcing Oversight | Enhanced oversight of outsourcing arrangements, including due diligence, contractual requirements, and ongoing monitoring, is mandated to ensure the resilience of critical functions. |
| Testing and Scenario Planning | Regular testing, including penetration testing and scenario-based exercises, is required to evaluate the effectiveness of resilience measures and response capabilities. |
Penalties for Non-Compliance
Non-compliance with DORA can result in significant penalties, including fines proportional to the severity and duration of the breach. Persistent non-compliance may lead to the suspension or withdrawal of authorisation, imposing substantial reputational and financial repercussions on affected entities.
In conclusion, the Digital Operational Resilience Act represents a pivotal step towards safeguarding the EU’s financial sector against evolving cyber threats and operational challenges. By adhering to its principles and requirements, financial entities can foster a culture of resilience, ensuring the stability and integrity of the financial system in an increasingly digitised world. Contact Transputec to find out more about DORA.
If you would like to discover how DORA ( Digital Operational Resilience Act ) can impact your business, engage with one of our Cyber Consultants to learn more.
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FAQs
What is the Digital Operational Resilience Act and who does it apply to?
The Digital Operational Resilience Act is a regulatory framework proposed by the European Commission to strengthen the operational resilience of the financial sector within the European Union (EU). It applies to a wide range of financial entities, including banks, payment institutions, stock exchanges, central counterparties, and other critical service providers operating within the EU.
Why is DORA needed?
The financial sector increasingly relies on technology and tech companies to deliver financial services. However, this dependence makes financial entities vulnerable to cyber-attacks and incidents. Improperly managed ICT risks can lead to disruptions in financial services across borders, affecting other companies, sectors, and even the broader economy. It aims to enhance digital operational resilience in the financial sector by harmonising rules and ensuring robust IT security
What are the penalties for non-compliance with DORA?
Non-compliance with DORA can result in significant penalties, including fines proportional to the severity and duration of the breach. Persistent non-compliance may lead to the suspension or withdrawal of authorisation, imposing substantial reputational and financial repercussions on affected entities.
