In today’s increasingly interlinked world, navigating the challenges of digital operational resilience is crucial. Organizations now have newer requirements and liabilities due to the introduction of the Digital Operational Resilience Act (DORA)—Regulation (EU) 2022/2554. But what is the DORA Regulation (EU) 2022/2554?
In short, it is a major piece of European Union legislation on cybersecurity for financial entities, such as banks or credit institutions. As part of the Digital Finance Package (DFP), the European Commission released the first draft of the Digital Operational Resilience Act (DORA) on September 24, 2020. Its components include legislative suggestions on cryptocurrency assets, blockchain technology, digital operational resilience, and digital finance.
This blog will discuss the Digital Operational Resilience Act (DORA), including its purpose, who it applies to, key requirements, and benefits.
But first, let’s define DORA in detail.
What is the Digital Operational Resilience Act (DORA) – Regulation (EU) 2022/2554?
The DORA is a European Union regulation whose primary aim is to prevent or lessen cyberthreats in the finance industry.
To accomplish this, DORA establishes consistent standards for the security of critical third-party providers of information and communication technologies (or “ICT”-related) services to financial entities, including cloud platforms and data analytics services, as well as networks and information systems supporting these entities’ business processes.
Why Was DORA Enacted?
A single rulebook and a European financial oversight system govern the financial industry in the EU. However, there is one exception—the provisions that address ICT security and digital operational resilience are not yet fully or consistently unified. Disparities brought forth by national development plans could further obstruct internal market operations, harming both market players and the financial system’s stability.
This prompted the creation of a set of regulations, referred to as DORA, the sole purpose is to modernize and combine ICT risk requirements with operational risk standards, which have been covered separately in several Union legislative acts. Prior Union acts addressed several significant financial risks, including counterparty credit and liquidity risk, market conduct risk, credit risk, and market risk; nevertheless, they did not completely address operational resilience at the time of their implementation.
Therefore, the DORA seeks to correct any discrepancies or inadequacies in some of the previous legislative acts, especially those about terminology. ICT risk is specifically included in the DORA, which also sets regulations on ICT risk-management skills, incident reporting connected to ICT, operational resilience testing, and ICT third-party risk monitoring.
Now, let’s understand who DORA applies to.
Who Does the DORA – Regulation (EU) 2022/2554 Apply To?
The DORA Regulation applies to the EU’s financial sector and suppliers of ICT services to that sector – wherever those suppliers are based.
Financial entities covered by the DORA Regulation include:
- Credit, payments, and electronic money institutions
- Crypto-asset service providers and issuers of asset-referenced tokens
- Account information and crypto asset service providers
- Investment firms, central securities depositories, trade repositories
- Central counterparties and trading venues
- Managers of alternative investment funds and management companies
- Data reporting service providers and securitization repositories
- Insurance and reinsurance undertakings
- Insurance, reinsurance, and ancillary insurance intermediaries
- Institutions for occupational retirement provision and credit rating agencies
- Administrators of critical benchmarks and crowdfunding service providers
So, what are the key requirements of the DORA Regulation? Let’s check them out in the following section.
Key Requirements of the DORA – Regulation (EU) 2022/2554
The five primary pillars of DORA, which address different ICT and cyber security sectors and elements, comprise its essence. These pillars offer relevant entities a comprehensive framework for digital resilience. Below is a summary of the essential conditions or elements:
ICT Risk Management
The DORA proposal establishes a set of specifications for the ICT risk management framework, and they include:
- Reducing the impact of ICT risk by establishing and maintaining robust ICT systems.
- Identifying all ICT risk sources to provide safeguards and preventative measures.
- Detecting unusual behaviors promptly.
- Implement thorough and committed business continuity strategies and disaster and recovery plans to guarantee a speedy recovery from an ICT-related occurrence.
- Providing systems for the organization to grow and learn from outside events and internal ICT mishaps.
ICT-Related Incident Reporting
The DORA proposal establishes a set of specifications for ICT-related incident reporting, and they include:
- Creating and putting a management procedure into place to keep an eye on and record ICT issues.
- The event is assigned a classification based on the standards specified in the legislation and expanded upon by the ESAs, such as ESMA, EBA, and EIOPA.
- Ensuring issues are reported to the appropriate authorities using a standard form and a standardized process that the relevant supervisory authority has set.
- Sending the company’s users and clients preliminary, intermediate, and final reports on occurrences using ICT.
Digital Operational Resilience Testing
The DORA proposal establishes a set of specifications for digital operational resilience testing, and they include the following:
- Checking the readiness of the various components of the ICT risk management system regularly.
- Noting and rectifying any flaws, shortcomings, or holes by implementing preventative measures or mitigating their effects.
- Consolidating the criteria for digital operational resilience testing is commensurate with the size, type of business, and risk profile of the entities.
- Addressing higher risk exposure, conducting Red or Purple Team Assessments, commonly known as Threat-Led Penetration Testing (TLTP), and more.
ICT Third-Party Risk Mitigation
The DORA proposal establishes a set of specifications for ICT third-party risk mitigation, and they include:
- Making sure to monitor any risks arising from external ICT providers.
- Coordinating essential service components and relationships with ICT third-party suppliers to allow for “full” monitoring.
- Ensuring all the monitoring and accessibility information, including a complete service level description and the locations where data is handled, is included in the contracts with the ICT third-party providers.
- Assisting with unifying supervisory strategies for ICT third-party risks by imposing a Union Oversight Framework on service providers.
Information Sharing
The DORA proposal establishes a set of specifications for the information-sharing framework, and they include the following:
- Promoting cooperation between reliable networks of different financial institutions to improve their digital operational resilience, increase knowledge of ICT hazards, reduce the potential for increasing ICT threats, and assist organizations in their defensive and detection methods, mitigation plans, or stages of response and recovery.
- Sharing intelligence and information about cyber threats with one another using agreements that safeguard the potentially sensitive nature of the shared data.
Lastly, check out the benefits of implementing the DORA guidelines in your organization.
Benefits of Using the Digital Operational resilience Act DORA – Regulation (EU) 2022/2554
Both businesses and consumers can gain from implementing the Digital Operational Resilience Act (DORA) – Regulation (EU) 2022/2554 in several ways. These include:
- Improved Cybersecurity: DORA requires strong cybersecurity protocols, enhancing defenses against online threats and weaknesses in digital services.
- Increased Resilience: DORA improves operational resilience by allowing organizations to implement risk management frameworks and backup plans, guaranteeing the continuation of vital services.
- Improved Consumer Trust: Adherence to DORA gives customers assurance about the dependability and security of digital services, which promotes loyalty and trust.
- Streamlined Compliance: Establishing uniform standards throughout the EU using DORA makes it easier for businesses to adhere to regulations in several jurisdictions.
- Prompt Incident Response: DORA enables early reporting of incidents to help minimize the effect of cybersecurity incidents and facilitates a quick response.
- Innovation Support: Besides advancing cybersecurity, DORA seeks to stimulate innovation by elucidating and directing compliance requirements and fostering responsible digital transformation.
In general, DORA helps fortify the EU’s digital infrastructure, protecting companies and customers from cyberattacks while encouraging innovation and expansion in the digital sector.
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