In the current digital era, in which financial transactions are predominantly carried out online, operational resilience has become of the utmost importance for businesses.
As such, in light of regulation to ensure operational resilience, it is crucial that organisations take steps to better understand it, grasp its consequences and formulate an operational resilience strategy which is fully compliant. This is the only way to minimise digital disturbances and ensure continued business operations.
What is the Digital Operational Resilience Act (DORA)?
The Digital Operational Resilience Act (DORA) is an effort by the European Union to address the growing concern around cyber threats. This significant legislative initiative known as DORA mandates enhanced resilience against IT-related threats and establishes uniform digital risk management processes throughout the financial sector.
Under DORA, businesses will need to implement strict measures to identify potential vulnerabilities in their digital operations. They can then take the necessary steps to counteract these flaws. This could involve strengthening cybersecurity protocols, improving data protection measures, and creating contingency plans for actions that should be taken when an emergency occurs.
This is crucial in today's technological age, as IT systems play an integral role in financial operations, and disruption can have far-reaching implications.
The aim of DORA
DORA's principal objective is to guarantee that all financial services providers implement requisite measures to mitigate cyber-attacks and other related risks. This includes bolstering their ability to withstand IT-related threats and standardising digital risk management procedures across the finance sector, thereby fostering a more secure and reliable digital finance landscape across the EU.
It ultimately emphasises the importance of testing and continuous improvement. Companies will be required to regularly test their digital resilience and learn from any incidents that do occur, using these as opportunities to further enhance their safeguards.
DORA seeks to create a culture of durability within the finance sector, in which businesses can prepare for unwanted cyber incidents and respond effectively.
What is operational resilience?
Operational resilience is an organisation's capacity to sustain its services, even when confronted with adverse scenarios. Within the framework of DORA, digital operational resilience centres on the strength of the digital infrastructure, particularly in relation to crucial IT assets.
This type of strength is designed to help with a wide array of potential disturbances, including natural disasters, system malfunctions, cyber threats, and other unforeseen incidents that could disrupt standard business processes.
Financial establishments rely heavily on their digital systems to provide the vital services they provide to their clientele. Any disturbances to these systems can create unwanted consequences, including financial setbacks, reputational harm, and regulatory sanctions. By enhancing their digital operational resilience, these institutions can mitigate these risks more effectively and ensure the uninterrupted provision of their services.
Who needs to comply with DORA regulation?
The DORA regulation applies to a wide array of organisations within the finance sector, such as:
1. Credit institutions: This category includes banks and other financial entities that extend credit to consumers and businesses. These institutions manage substantial volumes of sensitive financial information and are frequent targets for cyber-attacks.
2. Payment institutions: These are authorised organisations responsible for executing payment transactions, issuing payment instruments, or acquiring payment transactions. Given their pivotal role within the financial framework, the importance of digital operational resilience for them cannot be overstated.
3. Investment firms: This includes brokerage houses, asset management entities, and private equity firms. These firms oversee substantial assets, and any disruption could negatively impact both investors and the broader financial market.
4. Insurance companies: Both life and non-life insurance companies are mandated to adhere to DORA. They possess extensive volumes of personal and financial data pertaining to policyholders, rendering them attractive targets for cybercriminals.
5. Crypto-asset service providers: With the continued expansion of the cryptocurrency arena, regulatory oversight has increased. Under DORA, service providers operating in this sector, such as wallet providers or cryptocurrency exchangers, must also ensure the implementation of robust digital operational resilience measures.
Does it apply in the UK?
Despite Brexit, financial institutions based in the UK that operate within the EU or provide services to EU clients must adhere to DORA irrespective of its headquarters' location. However, the specific responsibilities may vary depending on the nature of their activities and engagement with the EU market.
Non-compliance with DORA can result in penalties, including fines and harm to reputation. Therefore, it is imperative for UK firms operating in the EU to comprehend their obligations under this regulation and take the appropriate measures to improve compliance.
DORA regulation summary: 3 main pillars
#1: IT risk management
Organisations are required to maintain an effective and proportionate IT risk management framework. This includes identifying, classifying, and mitigating potential risks that could impact their IT infrastructure.
All aspects of the risk management process should be thoroughly documented and reported. This not only provides a record for future reference, but also demonstrates to stakeholders (including regulators) that the organisation is actively managing its IT risks.
#2: IT incident reporting
As part of their responsibilities under regulations like DORA, financial entities are required to report any significant IT incidents to their respective authorities. The aim here is to ensure transparency across the EU's finance sector.
Failure to report significant IT incidents can again result in fines. Therefore, businesses should have adequate processes in place to detect incidents promptly, assess their significance, and report them in a timely manner.
#3: Digital Operational Resilience testing
Regular testing of digital resilience is mandated under DORA. This includes conducting self-assessments and external audits to evaluate the effectiveness of the organisation's processes.
What this means for the finance sector
The implementation of the DORA legislation signifies a major shift in the way finance sector companies conduct themselves. It demands greater accountability, transparency, and vigilance from all those involved. While compliance may pose certain challenges, it also presents an opportunity for businesses to strengthen their digital defences, enhance customer trust, and ultimately gain a competitive edge in today's digital-first world.
How Advanced Financials can help
In practical terms, finance teams need to prepare for DORA by implementing strong measures to identify potential vulnerabilities in their digital operations and take proactive steps to address these.
Advanced Financials is a Cloud-based financial management tool that helps businesses stay on top of all the latest regulations, with regular updates applied instantly and remotely. With all their finance data stored safely in a unified digital location, businesses have ultimate transparency and can compile insightful reports as and when they need them.
