Understanding DORA Compliance and Its Implications

The Digital Operational Resilience Act (DORA) is a significant legislative framework proposed by the European Union to enhance the cybersecurity and operational resilience of financial institutions. As cyber threats continue to evolve, DORA aims to create a robust regulatory environment that ensures financial entities can withstand, respond to, and recover from all types of ICT-related disruptions and threats. This mandatory law came into force in January 2023 and will apply from 17 January 2025. A breach could see financial institutions, or their ICT providers fined up to 2% of their total annual worldwide turnover or up to 1% of the company’s average daily turnover worldwide. Individuals, such as CIOs or CISOs, could also personally face fines if deemed negligent in their duties.

If your business is UK based or outside the EU and provides financial or critical ICT services to entities within the EU financial sector, DORA will apply to you.

What is DORA?

DORA is part of the EU’s Digital Finance Package, introduced to bolster the financial sector’s resilience in the face of increasing digital threats. It sets comprehensive requirements for financial entities, including banks, insurance companies, investment firms and 3rd party ICT providers to manage and mitigate ICT risks. DORA covers several key areas: ICT risk management, incident reporting, operational resilience testing, third-party risk management, and information sharing.

Key Components of DORA (The 5 Pillars):

1. ICT Risk Management: DORA mandates that financial entities implement robust ICT risk management frameworks. This involves identifying, assessing, and mitigating ICT risks to ensure continuous operation.
2. Incident Reporting: Entities must establish clear protocols for reporting major ICT-related incidents to competent authorities. This aims to enhance transparency and allow for swift regulatory responses.
3. Operational Resilience Testing: Regular testing of ICT systems, including threat-led penetration testing (TLPT), is required to ensure systems can withstand cyber-attacks and other disruptions.
4. Third-Party Risk Management: Financial institutions must manage risks associated with third-party ICT service providers. This includes due diligence, contractual requirements, and monitoring the providers’ performance.
5. Information Sharing: DORA encourages information sharing on cyber threats and incidents among financial entities to foster collective defence strategies.

Implications of DORA Compliance:

1. Enhanced Security Posture: By adhering to DORA’s stringent requirements, financial institutions can significantly improve their cybersecurity defences. This leads to a more resilient financial system capable of preventing and mitigating cyber threats effectively.
2. Regulatory Burden: While DORA aims to strengthen operational resilience, it also imposes additional regulatory burdens on financial entities. Compliance requires substantial investments in ICT infrastructure, personnel training, and continuous monitoring.
3. Competitive Advantage: Entities, including 3^rd party providers, that achieve DORA compliance may gain a competitive edge by demonstrating robust cybersecurity and resilience capabilities. This can enhance trust and confidence among clients and partners.
4. Operational Costs: Implementing and maintaining compliance with DORA can be costly. Financial institutions must allocate resources for upgrading ICT systems, conducting regular tests, and managing third-party risks.
5. Collaborative Defence: DORA’s emphasis on information sharing fosters a collaborative approach to cybersecurity. Financial institutions can benefit from shared insights and collective intelligence to better defend against emerging threats.

Conclusion:

DORA represents a proactive approach to enhancing the digital operational resilience of the financial sector. While it introduces significant compliance requirements, the long-term benefits of a more secure and resilient financial system outweigh the initial challenges. Financial institutions and providers must prioritize DORA compliance to safeguard their operations and protect against the ever-evolving landscape of cyber threats.

Speak to our security team at Archway Securities to find out more.