Illustrative guide to key DORA Regulation compliance requirements for the financial sector.

What is DORA?

The Digital Operational Resilience Act (DORA) is a EU regulation that entered into force on 16 January 2023 and will apply as of 17 January 2025. DORA (EU) 2022/2554 is a regulatory framework established by the European Union to enhance the digital operational resilience of the financial sector. It aims to ensure that all participants in the financial system have the necessary safeguards and measures in place to withstand, respond to, and recover from ICT (Information and Communication Technology) related disruptions and threats.

Who is Affected?

DORA affects a wide range of entities within the EU financial sector, including:

  1. Credit Institutions and Banks: These are financial institutions that have the authority to accept deposits from the public and provide credit to individuals and businesses. Their services may include offering checking and savings accounts, loans, mortgages, and financial advice.
  2. Investment Firms: Firms that engage in various investment services such as portfolio management, investment advice, and trading in financial instruments on behalf of clients. They play a crucial role in securities markets and can range from brokerage firms to asset management companies.
  3. Insurance and Reinsurance Companies: Insurance companies provide risk management to individuals and entities by offering insurance policies. Reinsurance companies, in turn, provide insurance to other insurance companies, helping to manage and mitigate risks across the insurance industry.
  4. Payment and Electronic Money Institutions: These entities facilitate payment services and transactions, including transfers, direct debits, and credit transfers. Electronic money institutions issue electronic money, which is a digital alternative to cash used for making electronic transactions.
  5. Crypto-Asset Service Providers: These providers offer services related to cryptocurrencies and other digital assets, including exchange platforms, wallet services, and financial services involving digital tokens.
  6. Central Securities Depositories (CSDs): CSDs are institutions that hold financial instruments like stocks and bonds in electronic form and enable their transfer through book-entry. They play a pivotal role in the settlement and safekeeping of securities in financial markets.
  7. Central Counterparties (CCPs): CCPs are entities that act as intermediaries between buyers and sellers in derivative and securities markets, guaranteeing the terms of a trade even if one party defaults, thus reducing counterparty risk.
  8. Trading Venues: This term encompasses various platforms where financial instruments are traded, including regulated markets, Multilateral Trading Facilities (MTFs), and Organized Trading Facilities (OTFs).
  9. Managers of Alternative Investment Funds (AIFs) and UCITS (Undertakings for Collective Investment in Transferable Securities): These managers operate investment funds not covered by traditional banking regulations. Alternative Investment Funds (AIFs) include hedge funds, private equity, and real estate funds, while UCITS are mutual funds that are regulated at the European level, designed for retail investors.
  10. Data Reporting Service Providers: Entities that provide reporting and data services related to financial transactions, ensuring transparency and regulatory compliance in financial markets. This includes trade repositories and approved reporting mechanisms.
  11. Crowdfunding Service Providers: Platforms that connect individuals or businesses seeking to fund projects or ventures with people willing to contribute small amounts of money, typically via the internet.
  12. ICT Third-Party Service Providers to Financial Entities: These include providers offering critical ICT services such as cloud computing, data analytics, cybersecurity solutions, and software development, which are essential for the digital operations of financial entities.

These entities encompass a broad spectrum of the financial sector within the EU, each playing a critical role in maintaining the stability and integrity of financial markets, and are thus subject to DORA’s regulatory framework aimed at enhancing their operational resilience against ICT risks.

Sanctions and Penalties:

DORA, the Digital Operational Resilience Act empowers competent authorities to impose administrative penalties and remedial measures for breaches of its regulations. This includes issuing orders to cease breaches, requiring the cessation of practices contrary to DORA provisions, adopting measures to ensure ongoing compliance with legal requirements, requiring existing data traffic records from telecommunication operators under suspicion of a breach, and issuing public notices or statements about the breach and responsible parties . The imposition of penalties considers the breach’s materiality, gravity, duration, the responsible party’s degree of responsibility, financial strength, profits gained or losses avoided due to the breach, losses caused to third parties, and the level of cooperation with the competent authority.

Key Requirements of DORA:

  1. ICT Risk Management: Entities must implement and maintain an effective and comprehensive ICT risk management framework, including policies, procedures and measures to identify, protect, detect, respond and recover from ICT-related incidents.
  2. Incident Reporting: Financial entities are required to establish and maintain mechanisms for the timely detection and reporting of significant ICT-related incidents to relevant authorities.
  3. Digital Operational Resilience Testing: Financial entities must regularly test their digital resilience capabilities through various means, including threat-led penetration testing, to identify vulnerabilities and address them proactively.
  4. ICT Third-Party Risk: Entities must manage and monitor the ICT risks stemming from their reliance on third-party service providers, including cloud computing services, ensuring that these relationships do not undermine their digital operational resilience.
  5. Information Sharing: The framework encourages financial entities to share information related to cyber threats and vulnerabilities to enhance collective defense mechanisms and resilience across the financial sector.
  6. Oversight of Critical ICT Third-Party Service Providers: DORA introduces a framework for the oversight of critical ICT third-party service providers to the financial sector, aiming to mitigate systemic risk and ensure the stability of the financial system.
  7. Compliance and Enforcement: DORA establishes mechanisms for supervisory oversight, compliance and enforcement, including the potential for sanctions in cases of non-compliance with the regulation’s requirements.

By adhering to these requirements, financial entities and their ICT third-party service providers will contribute to a more resilient and stable financial system capable of withstanding and responding effectively to digital disruptions and threats.

Navigating DORA’s requirements can be complex, but you don’t have to do it alone. Nebosystems offers tailored cybersecurity measures and consulting to ensure your compliance. Ready to secure your digital resilience? Contact us today.

Reference: Digital Operational Resilience Act (EU) 2022/2554. EUR-Lex.