In today’s increasingly interconnected financial landscape, the need for robust digital resilience has never been greater. Recognizing this, the European Union has introduced the Digital Operational Resilience Act (DORA), a landmark regulation designed to standardize and strengthen ICT risk management across the financial sector. The DORA mandates specific technical standards, capabilities, and outcomes to ensure a unified set of best practices for digital resilience across the financial sector within its “Five Pillars”:
- ICT Risk Management,
- ICT Incident Reporting,
- Digital Operational Resilience Testing,
- ICT Third-Party Risk Management, and
- Information Sharing Arrangements (encouraged by not “required”)
1. ICT Risk Management (One of the Five Pillars of the DORA)
Organizations must implement comprehensive ICT risk management frameworks to identify, assess, and mitigate operational and cybersecurity risks. Key requirements include:
- Establishing governance frameworks;
- Conducting regular risk assessments; and
- Defining risk tolerance and mitigation strategies.
Objective:
This pillar requires financial institutions to implement comprehensive and proactive ICT risk management practices.
Key Elements:
- Institutions must identify and assess the risks related to their ICT systems and infrastructures.
- A robust risk management framework must be in place, covering the prevention, detection, and mitigation of ICT-related risks, including cyber threats, operational failures, and natural disasters.
- Risk management processes should be integrated into the overall governance structure of the organization.
- Specific measures to manage and monitor ICT risks across the entire life cycle of digital services should be implemented, including software, hardware, and data.
- Governance: There is an emphasis on having clear ownership of ICT risk management within the organization, particularly by senior management.
2. ICT Incident Reporting (One of the Five Pillars of the DORA)
The DORA mandates detailed reporting of ICT-related incidents to national authorities. This entails documenting the nature of the incident, its impact on operations, the affected systems, and any mitigation steps undertaken. For instance, a major data breach at a payment processor would require a detailed account of the breach’s scope, the number of customers impacted and immediate actions taken to secure the system.
Such reporting helps authorities assess systemic risks and provides organizations with a structured approach to managing incidents. The goal is to improve transparency and enable quick responses to systemic risks. Organizations must implement incident detection mechanisms. Classify incident severity and submit standardised incident reports within specified time frames.
Objective:
This pillar focuses on the early identification, reporting, and resolution of ICT-related incidents that could potentially disrupt the operation of financial services.
Key Elements:
- Financial institutions must have a system in place to detect and report incidents as soon as they occur or are detected, ensuring timely and effective response.
- Incidents must be categorized based on their severity, with those having a significant impact on the operation of the institution being reported to regulators and relevant authorities (e.g., the European Supervisory Authorities – ESAs).
- Reports must include detailed information about the nature, cause, impact, and resolution efforts of the incident.
- Institutions are also required to share lessons learned from incidents to prevent recurrence and improve resilience over time.
3. Digital Operational Resilience Testing (One of the Five Pillars of the DORA)
To ensure resilience, financial entities must test their systems rigorously. The DORA highlights Threat-Led Penetration Testing (TLPT) for critical ICT systems. Requirements include:
- Regular testing schedules;
- Comprehensive vulnerability assessments; and
- Scenario-based crisis simulations.
Objective:
To ensure financial institutions’ ICT systems are resilient to stress scenarios and can continue to operate during and after disruptions, this pillar mandates regular resilience testing.
Key Elements:
- Institutions must conduct regular testing of their ICT systems to assess their operational resilience. These tests can include scenario-based simulations, penetration testing, and vulnerability assessments.
- The testing should cover various aspects, such as cyber attacks, system failures, and other disruptive events.
- Financial institutions are required to conduct testing not only in-house but also in collaboration with third-party providers to ensure end-to-end resilience.
- Regular testing results must be documented, and improvements must be made to systems and processes based on test findings.
Frequency:
The testing frequency is typically defined by the risk profile and size of the institution, with larger institutions subject to more rigorous requirements.
4. ICT Third-Party Risk Management (One of the Five Pillars of the DORA)
Outsourcing ICT services doesn’t mean outsourcing accountability. The DORA requires organizations to manage third-party risks proactively by:
- Conducting due diligence on ICT providers;
- Monitoring SLAs (Service Level Agreements); and
- Ensuring contingency plans are in place.
Objective:
Since many financial institutions rely on third-party vendors, this pillar aims to ensure that these third-party relationships do not pose a risk to digital operational resilience.
Key Elements:
- Financial institutions must assess the operational resilience of their critical third-party providers and ensure that these providers are subject to similar ICT risk management practices.
- Contracts with third parties must include clear terms regarding the minimum levels of service required, including uptime, recovery, and security standards.
- Institutions must establish a system for monitoring third-party providers on an ongoing basis, ensuring that they continue to meet the required resilience standards.
- This pillar also emphasises the need for contingency plans if a third-party provider fails to deliver services as expected or causes significant disruptions to operations.
- Critical third-party providers (e.g., cloud providers, payment processors) must comply with the DORA’s standards or risk being subject to sanctions.
5. Information Sharing Arrangements (encouraged but not “required”) (One of the Five Pillars of the DORA)
Collaboration is crucial in combating cyber threats. The DORA encourages financial entities to:
- Join trusted networks for sharing threat intelligence;
- Participate in industry-wide cybersecurity exercises; and
- Develop secure communication channels for incident reporting.
Objective:
This pillar promotes cooperation and information sharing among financial institutions, regulators, and other stakeholders to improve overall resilience to ICT risks across the financial sector.
Key Elements:
- Institutions are encouraged to collaborate and share relevant information regarding cyber threats, vulnerabilities, incidents, and best practices.
- There should be a structured process for sharing information related to incidents and threats to prevent cascading effects across the financial sector.
- Regulatory authorities, such as the European Supervisory Authorities, play a central role in facilitating this cooperation and ensuring information is exchanged in a timely and secure manner.
- Institutions must participate in national and EU-wide initiatives to enhance collective digital operational resilience, including participating in threat intelligence networks and working with law enforcement and cybersecurity bodies.
Understanding the Collaborative Frameworks
This includes the establishment of industry groups, joint exercises, and sector-wide programs that focus on ICT resilience and incident management. These five pillars work together to create a comprehensive framework that encourages financial institutions to proactively manage and strengthen their ICT systems. They focus on preventing incidents, detecting disruptions early, ensuring systems remain operational under stress, managing third-party risks, and fostering collaboration to improve overall sector resilience. By adhering to these pillars, financial institutions can enhance their ability to respond to and recover from digital operational disruptions.
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The DORA’s Five Pillars—ICT Risk Management, ICT Incident Reporting, Digital Operational Resilience Testing, ICT Third-Party Risk Management, and Information Sharing—serve as the foundation for a secure and resilient financial ecosystem. Achieving compliance with these requirements is not merely about meeting regulatory obligations; it’s about fortifying your organization against the growing threats of cyber risks and operational disruptions.
At TechGDPR, we specialize in helping businesses navigate this complex landscape with confidence. Our tailored services, including in-depth gap analyses, ensure your organization aligns with the DORA’s standards while optimizing existing processes. Let us partner with you to transform compliance into an opportunity for operational excellence and long-term stability. Reach out to us today to take the first step toward robust digital operational resilience.