The European Union’s (EU) Digital Operational Resilience Act (DORA) has ushered in a new era of operational security and risk management for financial institutions. Enacted in January 2023, DORA compliance establishes a harmonized framework to protect the financial sector from information and communications technology (ICT) disruptions. With the compliance deadline of January 17, 2025, fast approaching, firms must act swiftly to align with the act’s extensive requirements. This article provides an in-depth analysis of DORA’s key components and offers actionable steps to achieve DORA compliance.

DORA Compliance: Understanding the Requirements

DORA aims to fortify operational resilience within the EU’s financial system by addressing ICT risks. The legislation applies to a broad spectrum of entities, including banks, investment firms, payment institutions, and insurers, along with their ICT suppliers. Non-EU-based firms with business ties to the EU must also comply.

Key compliance mandates include:

• ICT Risk Management: Firms must integrate comprehensive risk management processes to identify, monitor, and mitigate ICT threats.
• Incident Reporting: Firms must report significant ICT-related incidents to regulators promptly.
• Third-Party Risk Management (TPRM): ICT contracts must meet baseline requirements, with additional obligations for critical or important functions (CIFs).
• Operational Resilience Testing: Firms must conduct regular penetration testing and vulnerability assessments on their ICT systems.

These requirements aim to ensure the financial sector remains resilient amid increasing digitalization and dependence on third-party providers.

Contractual Compliance Under DORA

DORA’s focus on TPRM highlights the importance of maintaining control over third-party ICT providers. All ICT contracts must include baseline terms such as:

• Detailed descriptions of services and service levels.
• Data processing and storage locations.
• Assistance in resolving ICT incidents.
• Cooperation with regulatory audits.

For CIF-related contracts, additional terms are required, such as:

• Business contingency plans.
• Subcontracting transparency.
• Enhanced termination rights.
• Audit and inspection rights for firms and regulators.

A notable challenge lies in meeting the Subcontracting Regulatory Technical Standards (RTS), which require firms to monitor the entire subcontracting chain, ensuring transparency and mitigating risks.

Steps to Achieve DORA Compliance

1. ICT Service Mapping
   Begin by identifying all ICT services supporting CIFs and non-CIFs. Create a detailed map of service providers and the ICT systems they manage. Classify contracts accordingly to prioritize compliance efforts.
2. Contract Gap Analysis
   Analyze existing ICT contracts against DORA’s baseline and additional requirements. Identify discrepancies and determine which contracts require amendments.
3. Drafting DORA-Compliant Templates
   Develop templates for new contracts and amendments for existing agreements. Tailor these templates to reflect the specific needs of CIF and non-CIF contracts.
4. Implementing a Remediation Plan
   Execute a structured plan to renegotiate and amend contracts. This includes engaging suppliers, addressing pushback on DORA’s extensive requirements, and finalizing amendments.
5. Operational Testing and Monitoring
   Conduct resilience tests on ICT systems and establish monitoring frameworks to ensure compliance with DORA’s risk management and incident reporting standards.
6. Building a DORA Register
   Maintain a centralized register of all ICT contracts, including compliance statuses and subcontractor details. This enhances transparency and simplifies regulatory reporting.

Challenges in Meeting the Deadline

Complying with DORA’s contractual requirements is a complex and time-consuming task. Common hurdles include:

• Mapping ICT Services: Identifying all services supporting CIFs and non-CIFs is often complicated by fragmented systems and incomplete records.
• Supplier Resistance: Many ICT providers push back on the stringent requirements, especially around audit rights and subcontracting.
• Time Constraints: With the January 2025 deadline looming, firms must balance remediation efforts with ongoing operational demands.

Conclusion: The Path to DORA Compliance

DORA represents a significant step toward securing the EU’s financial system against ICT risks. However, achieving compliance requires a proactive and systematic approach. By focusing on mapping ICT services, conducting gap analyses, and implementing robust TPRM strategies, firms can meet the deadline while minimizing operational disruptions.

Embracing advanced tools and technologies can streamline the process, enabling firms to navigate the complexities of DORA efficiently. With the clock ticking, the time to act is now. Firms that prioritize compliance will not only avoid penalties but also build stronger, more resilient operations for the future.

Related Links

1. European Commission on DORA
2. European Banking Authority: Guidelines for ICT Risk Management
3. European Securities and Markets Authority on DORA Compliance
4. Financial Stability Board: ICT Operational Resilience
5. DORA Subcontracting RTS Overview

Source: International Banker