Digital Operational Resilience Act (DORA): A Comprehensive Guide to Compliance

The Digital Operational Resilience Act (DORA) is a European Union regulation designed to strengthen the IT security of financial entities and ensure the financial sector remains resilient during severe operational disruptions. DORA applies to a wide range of financial entities and ICT third-party service providers. It aims to harmonize digital operational resilience across the European financial sector. DORA came into force on January 16, 2023, and will be applicable starting January 17, 2025.

Key Objectives of DORA

• Harmonization: Establishes a unified framework for digital operational resilience across the European financial sector by consolidating and enhancing existing ICT requirements.
• Resilience: Ensures financial entities can withstand, respond to, and recover from ICT-related disruptions and threats.
• Standardization: Creates a common framework for ICT risk management, incident reporting, resilience testing, third-party oversight, and information sharing.

Scope of DORA

DORA applies to 20 different types of financial entities and ICT third-party service providers. This includes:

• Credit institutions
• Investment firms
• Payment institutions
• Fintech companies
• Insurance companies
• ICT third-party service providers

The Five Pillars of DORA

DORA's requirements are structured around five key pillars:

1. ICT Risk Management:
   • Requires financial entities to establish comprehensive frameworks to identify, protect against, detect, respond to, and recover from ICT-related risks.
   • Emphasizes clear governance, regular risk assessments, protective measures, detection systems, incident response plans, and continuous improvement.
   • The ICT risk management framework should be documented and reviewed at least annually or after major ICT-related incidents.
2. ICT-Related Incident Management, Classification, and Reporting:
   • Standardizes the process for reporting significant ICT incidents, including cyber threats.
   • Involves developing criteria to classify incidents and setting up procedures to report them to authorities within specified timeframes.
   • Promotes information sharing to enhance collective resilience.
   • Requires the definition and implementation of an ICT incident management process.
3. Digital Operational Resilience Testing:
   • Mandates regular testing of ICT systems to evaluate their robustness.
   • Includes routine testing programs and advanced threat-led penetration testing (TLPT) to simulate real-world attacks.
   • Requires using test results to improve system resilience.
   • Periodic testing of all critical ICT systems and applications is essential.
4. Managing ICT Third-Party Risk:
   • Addresses risks associated with outsourcing ICT services.
   • Specifies that financial entities must perform thorough due diligence before engaging third-party providers and ensure contractual agreements include resilience and security provisions.
   • Requires continuous monitoring of third-party performance and management of risks related to over-reliance on a limited number of providers.
   • Calls for the development of an information register containing a comprehensive overview of all ICT third parties and annual reporting of changes to the regulator.
5. Information-Sharing Arrangements:
   • Encourages the exchange of threat intelligence and best practices among financial entities and authorities.
   • Promotes participation in collaborative networks for exchanging information and coordinating responses during incidents to improve overall resilience.
   • Aims to increase awareness of ICT risks, minimize their spread, and support the defensive capabilities of financial institutions and threat detection techniques.

DORA and Internal Audit

DORA has direct and indirect implications for the internal audit function.

Direct Requirements:

• Regular Audits: The ICT risk management framework must be subject to internal audit regularly.
• Auditor Expertise: Auditors must possess sufficient knowledge, skills, and expertise in ICT risk and appropriate independence.
• Follow-Up Process: A formal follow-up process must be established, including rules for the timely verification and remediation of critical ICT audit findings.

Other Implications:

• Internal Audit should consider requirements in Articles 6, 11, 27, 28, and 30 when defining the audit plan.
• Internal Audit can conduct activities outlined in Articles 27, 28, and 30 if not allocated to other resources.
• The audit plan should align with potential regulatory inspections to avoid overlaps or coverage gaps.

Implementing DORA: A Four-Step Approach

1. Assess Critical Functions:
   • Identify the organization’s critical and important functions.
   • Create a comprehensive overview of key processes and identify the ICT infrastructure (including third parties) that supports these processes.
2. Perform Risk Assessment:
   • Conduct a risk assessment on the ICT infrastructure to establish a risk profile and prioritize areas needing attention.
3. Conduct Gap Analysis:
   • Use a framework like the DORA in control framework to identify where the institution stands against DORA requirements and highlight areas for improvement.
4. Develop a Roadmap:
   • Create a plan focusing on solutions and mitigating measures to address identified gaps and ensure DORA compliance.

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The DORA in Control Framework

The DORA in control framework is designed to translate DORA’s legal complexities into actionable strategies. It helps financial institutions understand DORA’s contents, prepare gap assessments, and address root causes of issues in their ICT environment.

Key Features:

• Simplified Legal Interpretation: Translates DORA’s complex legal language into accessible language.
• Consolidated Actionable Controls: Consolidates DORA requirements into cohesive, actionable controls cross-referenced with specific DORA articles.
• Integration of Maturity Model: Incorporates a maturity model to assist institutions in tracking their progress.
• Visual Progress Dashboard: Provides a visual representation of implementation progress.
• Mapping of Controls: Maps controls to existing standards to help transition to the new regulatory framework.

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Challenges and Opportunities

Challenges:

• Interpretation: DORA requires interpretation across legal, IT, and business domains.
• Actionable Measures: Translating principles into actionable measures can be complex.
• Unified Framework: Developing a unified framework for DORA compliance can be challenging due to diverse interpretations.

Opportunities:

• Enhanced Resilience: DORA provides a strategic framework to improve risk management and ICT operational stability.
• Customer Trust: Adhering to DORA's requirements demonstrates a commitment to safeguarding customer assets and ensuring uninterrupted service, thereby building trust among customers, partners, and stakeholders.
• Improved Recoverability: Ensures continuous service availability through robust recovery mechanisms and testing.

Conclusion

The Digital Operational Resilience Act (DORA) is a critical regulation for ensuring the stability and security of the European financial sector. By understanding its key components and following a structured implementation approach, financial institutions can enhance their digital operational resilience, meet regulatory requirements, and foster trust and confidence in the digital age.