Cyber Resilience Exploring DORA: An Overview of the Digital Operational Resilience Act Key provisions of the new regulations set to start in January. By The Collaborative | September 12, 2024 As we wrap up the last few months of 2024, DORA looms ever larger on the horizon. The Digital Operational Resilience Act, required of financial entities in the European Union, goes into effect January 17, 2025. Banks, insurance companies, and Information and Communications Technology (ICT) third-party service providers are among the institutions that must comply with the regulations, which are designed to enable cyber resiliency. It’s crucial for all stakeholders to understand the key provisions and the impact they will have on the financial ecosystem. Here’s a deeper dive into the main components of DORA and what they mean for the industry. 1. Risk Management Requirements DORA introduces stringent requirements for financial entities to establish and maintain robust digital operational resilience frameworks. This means that firms must have comprehensive policies in place to manage ICT risks. These policies should cover the entire lifecycle of ICT systems, from development and deployment to maintenance and decommissioning. Financial entities are expected to regularly review and update their risk management strategies to adapt to new and emerging threats. 2. Incident Reporting One of the pivotal elements of DORA is the obligation for financial entities to promptly report significant cyber incidents to their respective regulatory authorities. This provision ensures that there is a timely flow of information between financial institutions and financial supervisors, which is crucial for managing systemic risks and enhancing the overall resilience of the financial sector. The act specifies the types of incidents that must be reported, the reporting timelines, and the detailed information that must be included in the reports. 3. Digital Operational Resilience Testing To ensure that financial entities can effectively withstand and recover from ICT disruptions, DORA mandates regular testing of digital resilience. This includes a range of testing activities, such as vulnerability assessments, penetration testing, and scenario-based exercises. These tests are designed not only to identify vulnerabilities in ICT systems and processes, but primarily to assess the effectiveness of the entity’s preventive, detection, response, and recovery capabilities. 4. Third-Party Risk Management Recognizing the increasing reliance on third-party ICT service providers, DORA sets out specific requirements for managing risks associated with these external parties. Financial entities must carefully select and monitor their service providers to ensure they comply with high resilience standards. They must conduct thorough due diligence before entering into agreements and continuously monitor the service providers’ performance and compliance with contractual obligations. 5. Oversight Framework DORA establishes an oversight framework that allows European supervisory authorities to directly oversee critical ICT third-party service providers. This framework is intended to compel providers to adhere to stringent resilience standards, given their importance to the financial sector. The oversight includes regular assessments and, if necessary, the imposition of remedial actions to address identified deficiencies. Penalties for Noncompliance Noncompliance with DORA can result in significant penalties, which are crucial in maintaining the integrity and effectiveness of the act. These can vary depending on the severity and nature of the offense. They are designed to be dissuasive and proportionate to the financial strength and size of the entity, as well as the extent of the disruption caused by the noncompliance. For minor infringements, financial entities might face warnings or reprimands. However, for more serious breaches, the penalties can include hefty fines. In cases of repeated noncompliance or particularly egregious breaches, regulatory authorities have the power to impose additional sanctions. These can include the revocation of licenses, temporary bans on conducting certain business activities, or other restrictions necessary to protect the financial system. Positive Impact on Financial Stability The introduction of DORA marks a significant step forward in the quest for greater digital operational resilience in the financial sector. By setting out clear requirements for financial entities and service providers, the EU aims to safeguard the sector from ICT-related disruptions and threats. It is imperative for all affected entities to fully grasp these provisions and prepare accordingly to ensure compliance and enhance their resilience capabilities. This comprehensive approach not only enhances the security of individual institutions but also bolsters the stability of the financial system as a whole. As we move closer to January 2025, the anticipation of DORA’s impact continues to build, promising a new era of digital resilience in finance. Learn more about managing DORA compliance with Commvault® Cloud here. More related posts Cyber Resilience The Challenges of Data Protection Sep 3, 2024 View The Challenges of Data Protection Cyber Resilience The Unexpected Connection: How Cyber Resiliency and Professional Sports Collide Aug 8, 2024 View The Unexpected Connection: How Cyber Resiliency and Professional Sports Collide