The Digital Operational Resilience Act (DORA) is a proposed regulation by the European Union (EU) aimed at strengthening the operational resilience of the financial sector in the digital age.
DORA aims to address the increasing reliance of the financial sector on digital technologies and the potential risks associated with cyber threats and technology failures. It seeks to establish a comprehensive framework to ensure that financial institutions and critical service providers maintain a high level of operational resilience.
As of January 16, 2023, the Digital Operational Resilience Act (DORA) has come into effect. Starting from January 17, 2025, it will be applicable to a wide range of financial institutions.
5 key objectives of the DORA
- Enhanced supervision: DORA intends to strengthen the role of supervisors in overseeing the operational resilience of financial institutions and critical service providers. It may involve increased reporting requirements, inspections, and assessments to ensure compliance with the regulation.
- Incident reporting and management: DORA proposes a standardized incident reporting mechanism to enable timely identification and response to operational disruptions, cyber incidents, and other significant events. This helps regulatory authorities to assess the overall resilience of the sector and take appropriate actions if necessary.
- ICT risk management: DORA emphasizes the importance of effective Information and Communication Technology (ICT) risk management. It encourages financial institutions and critical service providers to implement robust cybersecurity measures, conduct regular risk assessments, and establish contingency plans to mitigate potential disruptions.
- Third-party risk management: The regulation recognizes the increasing reliance on third-party providers in the digital ecosystem and emphasizes the need for effective oversight and management of third-party risks. Financial institutions are expected to assess the operational resilience of their critical service providers and ensure adequate safeguards are in place.
- Testing and scenario planning: DORA promotes the use of testing and scenario planning exercises to assess the ability of financial institutions and critical service providers to withstand and recover from operational disruptions. This proactive approach helps identify vulnerabilities and develop appropriate resilience measures.
Who must comply
The Digital Operational Resilience Act (DORA) applies to a range of entities within the financial sector operating within the European Union (EU). DORA is expected to cover the following entities:
- Credit institutions: This includes banks and other financial institutions that accept deposits and provide credit services.
- Investment firms: DORA would likely extend to investment firms, which encompass a variety of entities involved in investment services, such as portfolio management and brokerage.
- Financial market infrastructures: DORA aims to include financial market infrastructures, such as payment systems, central securities depositories, and central counterparties that facilitate the functioning of financial markets.
- Insurance and reinsurance firms: Insurance companies and reinsurance firms operating within the EU are likely to be subject to DORA provisions.
- Data service providers: DORA may encompass entities that provide critical data services to financial institutions, such as benchmark administrators and data reporting service providers.
- Cloud service providers: The regulation may extend to cloud service providers that offer services to financial institutions, considering the importance of cloud infrastructure in the digital operations of the financial sector.
Harmonizing digital innovation and regulatory compliance
The initiatives to embrace digital technologies within financial institutions to stay competitive can bring both opportunities and risks. On the one hand, digital technologies enable enhanced customer experiences, operational efficiency, and innovation. However, these initiatives also introduce several risks that organizations need to be mindful of. Some key risks associated with digital transformation in financial institutions include:
- Cybersecurity risks: Increased reliance on digital systems and data exposes financial institutions to cyber threats, such as data breaches, hacking, or ransomware attacks. The interconnectedness of digital platforms and the potential for vulnerabilities in technology infrastructure pose significant risks to sensitive customer information and financial transactions.
- Operational disruptions: Digital technologies are susceptible to operational disruptions due to system failures, technological glitches, or cyber incidents. These disruptions can lead to service outages, financial losses, reputational damage, and customer dissatisfaction.
- Data privacy and compliance: The collection, storage, and processing of customer data in digital environments raise concerns about data privacy and compliance with data protection regulations. Financial institutions must ensure robust data governance practices and adhere to relevant regulations, such as the General Data Protection Regulation (GDPR).
- Third-party risks: Collaborating with third-party service providers for digital solutions introduces additional risks. Financial institutions must carefully manage and monitor the operational resilience of these providers to ensure they meet the required standards. Failure to do so can lead to disruptions in services or breaches of customer data.
- Regulatory compliance: The Digital Operational Resilience Act (DORA) imposes regulatory obligations on financial institutions regarding their operational resilience in the digital realm. Institutions must comply with DORA’s requirements, such as incident reporting, ICT risk management, and third-party oversight. Failure to comply may result in penalties, reputational damage, or limitations on operations.
BigID’s Approach to the Digital Operational Resilience Act (DORA)
- Data Discovery and Classification: BigID’s automated deep data discovery foundation can help organizations identify and classify sensitive data across their entire digital ecosystem, no matter what state it’s stored in. This capability assists in meeting DORA’s requirements for understanding and managing data-related risks, including data privacy and compliance.
- Data Governance and Consent Management: BigID’s Consent Governance App offers a centralized view for streamlined consent management. Easily define and set policies to automatically tack and manage user opt-in and opt-out consent.
- Data Breach Detection and Incident Response: BigID’s Breach Data Investigation App aids in detection and incident response so your organization can promptly identify and respond to data breaches or cybersecurity incidents. This aligns with DORA’s focus on incident reporting and effective response measures.
- Data Mapping and Data Flow Analysis: BigID’s solutions can assist organizations in mapping data flows and conducting data flow analysis. This aids in understanding how data is processed, transmitted, and stored within the organization and its third-party relationships, supporting compliance with DORA’s requirements.
- Privacy Impact Assessments: BigID’s PIA Automation App can help organizations conduct privacy impact assessments (PIAs) to assess the potential risks and impact of their digital operations on individuals’ privacy. This aligns with DORA’s emphasis on assessing and managing risks related to operational resilience and data privacy.
To see how BigID can accelerate your DORA compliance and all your other privacy initiatives— get a 1:1 demo with our experts today.