The Digital Operational Resilience Act (DORA) is a new EU regulation designed to protect financial institutions from ICT (Information and Communication Technology) disruptions and cyber threats. Compliance is mandatory by January 17, 2025, and applies to 20 types of financial entities, including banks, insurers, and crypto-asset providers. Here's why it matters:
- What DORA Covers: ICT risk management, incident reporting, resilience testing, third-party risk management, and information sharing.
- Non-Compliance Risks: Fines up to 2% of global turnover or $1.08 million for individuals.
- Compliance Costs: Expected to range from $5.4M to $16.2M per organization.
- Key Challenges: Managing third-party risks, upgrading legacy systems, and conducting resilience testing like penetration tests every two years.
DORA shifts the focus from financial safeguards to ensuring institutions can withstand and recover from digital disruptions. Failure to comply risks financial penalties and operational instability, while proper adherence can improve resilience and trust in the financial sector.
DORA - The Ultimate Guide to the 2025 EU Rule for Financial Firms
Core Pillars of DORA and Their Risk Effects
DORA establishes its framework for digital resilience on key pillars that define how risks are managed. These pillars focus on specific areas of digital operational resilience and demand thorough preparation across organizational, procedural, technical, legal, and informational domains. By understanding the role of each pillar, financial institutions can better navigate the significant changes this regulation brings.
"This set of regulations aims to move entities away from simply checking the boxes when it comes to regulatory mandates." - Wim Remes, operations manager at security firm Spotit
Together, these pillars form a robust defense strategy against digital risks, pushing institutions beyond conventional risk management approaches. Below, we break down the challenges and expectations tied to each pillar under DORA's framework.
ICT Risk Management
The ICT risk management pillar reshapes how institutions approach risk by requiring a structured framework to identify, assess, and address threats to their information and communication technology systems. Financial institutions and ICT service providers must adopt a proactive approach to safeguard their infrastructure. This involves implementing detailed protocols for protection, detection, containment, recovery, and repair in response to ICT-related incidents.
Regular risk assessments are critical, especially when working with third-party ICT service providers. Institutions are also urged to choose vendors who prioritize security and adhere to DORA’s compliance standards. These measures ensure that resilience and compliance are not just theoretical goals but practical, ongoing efforts.
Incident Reporting Requirements
DORA imposes strict requirements for reporting ICT incidents, emphasizing rapid notification and clear communication. Institutions must report significant incidents to regulatory authorities within set timeframes and establish detailed incident response plans to handle various scenarios.
To meet these demands, many organizations are turning to security information and event management (SIEM) solutions. These tools enable real-time threat detection and continuous monitoring, supported by well-defined escalation procedures. Incident outcomes are thoroughly reviewed and documented, creating opportunities for continuous improvement.
Resilience Testing
Perhaps the most challenging aspect of DORA lies in its resilience testing requirements. Financial institutions must conduct threat-led penetration testing (TLPT) at least once every two years. This testing identifies and addresses vulnerabilities in ICT systems before they can cause real damage.
Beyond penetration testing, institutions are required to simulate various disruptions, such as disaster recovery scenarios and business continuity exercises, to evaluate how well their systems perform under stress. While these exercises can occasionally disrupt operations during remediation, they are essential for reducing long-term risks to business continuity. This rigorous testing ensures that institutions remain operationally resilient in the face of diverse threats.
Third-Party Risk and DORA Compliance
Managing third-party risk under DORA is one of the most intricate challenges faced by approximately 22,000 financial services companies across the EU. This includes banks, payment institutions, investment firms, and insurance companies. The regulation fundamentally changes how financial institutions manage vendor relationships and external dependencies, emphasizing that accountability cannot be outsourced. Even when financial institutions rely on third-party ICT providers, they remain fully responsible for ensuring compliance with DORA. Below is an outline of the key requirements for handling these external relationships.
Third-Party Risk Management Requirements
Under DORA, financial entities must integrate third-party risk management into their broader ICT risk framework. This involves conducting thorough due diligence and ongoing monitoring both before entering into agreements and throughout the duration of these partnerships.
Key steps include:
- Maintaining a detailed register of all ICT third-party providers and their services. This should cover contract details, criticality assessments, and comprehensive risk evaluations.
- Ensuring contracts include specific provisions, such as risk management protocols, accountability structures, termination rights, and exit strategies tailored to the unique risks of each partnership.
- Extending the same standards of due diligence, monitoring, and risk management to subcontractors when ICT providers delegate services to other third parties.
Additionally, DORA requires institutions to establish robust third-party risk management programs. These programs must define roles, outline processes for risk assessment and mitigation, and include structured workflows for reporting, monitoring, and remediation. Regular resilience testing - such as simulations and stress tests - must also be conducted to ensure that external dependencies do not create single points of failure. As reliance on multiple vendors increases, institutions must also address concentration risk.
Concentration Risk in ICT Providers
Concentration risk arises when institutions rely too heavily on a small number of ICT providers, creating potential vulnerabilities. DORA tackles this issue by requiring financial entities to assess the risks tied to such dependencies. Institutions must demonstrate that critical providers can be replaced or justify why substitution is not feasible.
One strategy to reduce concentration risk is adopting a multi-vendor approach. By spreading critical functions across several providers, institutions can lower the risk of disruptions caused by the failure of a single vendor. However, this approach can introduce additional challenges in managing and coordinating multiple providers. Exit strategies are also essential, detailing plans to transition away from critical providers - whether to other vendors or internal solutions. These plans should address data migration, system integration, and potential service interruptions.
The evaluation of concentration risk must also account for subcontracting chains, provider insolvency, and compliance with data protection laws, particularly when working with providers outside the EU. Rather than eliminating third-party dependencies, DORA encourages institutions to focus on strengthening their operational resilience.
Non-compliance with DORA can lead to severe financial penalties. Regulatory authorities can impose fines of up to 1% of an institution's average daily global turnover from the previous year. These fines can accumulate daily for up to six months until compliance is achieved. This underscores the shared responsibility between financial institutions and their third-party providers to meet DORA’s stringent requirements.
Challenges in Implementing DORA
Meeting the requirements of DORA isn’t just about ticking regulatory boxes - it’s a complex process with steep costs and technical hurdles that can strain operational resilience. Financial institutions face challenges that go well beyond basic compliance.
Balancing Compliance and Cost
One of the biggest concerns for financial institutions is the hefty price tag of DORA compliance. Forbes reports that compliance efforts cost an average of $181 billion annually, with the expense per employee reaching $10,000. According to McKinsey, 70% of surveyed organizations expect their operational costs for technology and controls to increase permanently under DORA.
And the stakes are high. Non-compliance can lead to severe penalties, including fines up to 2% of annual turnover or significant individual repercussions. For smaller teams, even completing the necessary documentation can take months of effort.
To manage costs, institutions can take a few strategic steps. For example, they can build on existing cybersecurity measures, updating them to align with DORA requirements rather than starting from scratch. Automating compliance processes using specialized tools can also cut down on manual work and reduce labor expenses. Another option is outsourcing compliance functions through Compliance-as-a-Service (CaaS) solutions, which can ease the internal workload. A focused approach - prioritizing critical functions and leveraging existing controls - avoids overcomplicating compliance efforts. Additionally, Governance, Risk, and Compliance (GRC) platforms can simplify audits and lower administrative burdens by automating workflows.
But costs aren’t the only hurdle. Many institutions also struggle with outdated systems that aren’t built for modern resilience standards.
Upgrading Legacy Systems
One of the toughest challenges under DORA is dealing with legacy systems. Many financial institutions rely on older technology that wasn’t built to handle today’s resilience testing demands. These systems, weighed down by years of technical debt, often fall short of the standards required for digital resilience.
Updating or replacing these systems isn’t just a technical task - it’s a major undertaking that requires significant resources, time, and money. Most legacy systems lack the monitoring, logging, and reporting capabilities that DORA mandates, which means institutions often need to make substantial architectural changes. This is where external expertise becomes crucial.
Dan Sullivan, Head of Solutions Engineering at Itential, highlights the challenge:
"That's where Itential steps in. Our integration and orchestration platform simplifies the complexity and allows teams to manage configurations and deliver services across complex, segmented networks from a single platform, ensuring financial institutions meet DORA's requirements efficiently and reliably."
To navigate these challenges, institutions can implement compensating controls, such as adding extra layers of security, restricting access, and increasing monitoring frequency. These measures can help maintain compliance while a more comprehensive modernization plan is put into place. Viewing IT upgrades as a long-term investment can also help reduce risks and improve system performance. By prioritizing systems based on their importance and resilience capabilities, institutions can adopt a phased approach that spreads costs over time while maintaining operational stability.
Given the complexity of these issues, careful planning and outside expertise often make a big difference. Many institutions find that working with specialized technology vendors or consultants allows them to access ready-made DORA solutions without having to build everything in-house. This approach not only saves time and money but also ensures compliance with the regulation’s requirements.
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Getting Expert Support for DORA Compliance
Navigating the intricate requirements of DORA can be both challenging and costly. To address these hurdles, many institutions are turning to specialized consulting firms to simplify compliance processes and minimize potential errors.
How Consulting Firms Can Help
Consulting firms bring a structured approach to DORA compliance. As IS Partners LLC outlines:
"Handle the DORA compliance journey with a structured audit approach that evaluates ICT risks, tests cyber resilience, and ensures third-party security meets regulatory standards."
These firms conduct thorough risk assessments to pinpoint vulnerabilities in current ICT frameworks. From there, they create detailed action plans to address these gaps and implement solutions that ensure compliance. Their services don’t stop there - they also monitor for new threats and provide ongoing support. Key offerings include:
- Threat-led penetration testing
- Third-party risk management
- Incident response planning
- Governance and oversight support
For example, Kroll, leveraging expertise from former regulators, helped an investor services firm align with DORA. Kroll explains their approach:
"With our portfolio of advisory, transformation and managed services, we can assist you with the implementation of DORA-aligned policies and procedures, controls, testing and services across ICT risk management, incident management, business continuity, third-party risk management, and digital resiliency testing."
Consultants also provide strategic advice and additional resources. They can deliver independent compliance readiness evaluations, recommend tailored technical solutions, and even train in-house teams on best practices. Nikos Vassakis, SECFORCE Head of Consulting, highlights this importance:
"The best outcomes happen when you find a consultant who can stay with you for your entire DORA journey."
When choosing a consulting partner, financial institutions should look for firms with proven expertise in areas like regulatory compliance, IT auditing, cybersecurity, and project management. It’s also crucial to select partners who offer solutions tailored to the organization's specific needs.
Using the Top Consulting Firms Directory
For institutions seeking expert guidance, the Top Consulting Firms Directory is a valuable resource. This platform connects businesses with pre-vetted consulting firms specializing in DORA compliance.
The directory does more than just match organizations with consultants. It provides access to partners capable of delivering ongoing support, including systematic training, periodic audits, and development of robust compliance strategies. These services are essential for adapting to the ever-evolving regulatory environment. Whether an organization is just beginning its compliance efforts or refining existing measures, this directory can help find experts with the deep regulatory knowledge and practical experience needed to meet DORA's demands effectively.
Conclusion
The Digital Operational Resilience Act (DORA) represents a major transformation in how financial institutions handle ICT risk management. By addressing gaps that traditional operational risk strategies often missed, DORA sets a new standard for digital resilience.
At its core, DORA's five pillars create a cohesive framework that shifts the focus from reactive responses to proactive resilience. This approach not only reduces risks but also boosts market confidence and strengthens institutional stability.
The stakes for non-compliance are high, with penalties reaching up to 2% of annual global turnover or $1.1 million per individual. However, compliance isn't just about avoiding fines. Institutions that fully integrate DORA's principles can gain a competitive edge, attracting customers and building strong partnerships in today's increasingly regulated financial landscape.
DORA's impact extends well beyond IT departments. It reshapes service provider agreements, internal governance, and operational processes. It even mandates specialized cyber training for management teams, emphasizing its influence on strategic decision-making across organizations.
In a world where cyber threats are becoming more sophisticated - and with the average cost of a data breach hitting $4.45 million in 2023 - DORA's proactive measures are more critical than ever. Its framework equips businesses to tackle modern cyber risks while safeguarding the broader financial ecosystem.
Adapting to these new standards is no small task. For larger firms, compliance costs can range from $5.5 million to $16.5 million, making strategic planning and expert guidance essential. Partnering with experienced consultants can simplify this transition. Resources like the Top Consulting Firms Directory (https://allconsultingfirms.com) provide access to industry-leading firms that specialize in IT, digital transformation, and business growth, helping organizations navigate the complexities of DORA compliance.
FAQs
What challenges do financial institutions face with DORA compliance, and how can they address them?
Financial institutions are grappling with the demands of complying with the Digital Operational Resilience Act (DORA). Some of the biggest challenges include weaving comprehensive ICT risk management frameworks into their current operations, meeting strict regulatory standards, and creating effective methods for spotting, evaluating, and addressing risks. On top of that, keeping tabs on third-party risks has become even more pressing, requiring close scrutiny and assessment of external service providers.
To tackle these issues, institutions should start with gap analyses to pinpoint where their current practices fall short of DORA's requirements. Building a unified risk management framework and encouraging collaboration across departments can go a long way in ensuring compliance. On top of that, regular system testing, constant monitoring, and smart resource allocation are crucial steps for strengthening resilience and staying in line with regulations.
What changes does the Digital Operational Resilience Act (DORA) bring to managing third-party risks, and how does it affect financial institutions?
The Digital Operational Resilience Act (DORA)
DORA sets out tougher rules for financial institutions to manage risks linked to third-party providers. It requires thorough due diligence and ongoing monitoring of critical ICT (Information and Communication Technology) service providers to ensure they can withstand disruptions and maintain smooth operations. Additionally, financial institutions must establish strong incident management processes and regularly evaluate risks associated with their digital activities.
To meet these requirements, institutions will need to adapt their governance structures, hold senior leaders accountable for meeting compliance standards, and integrate resilience testing into their operational plans. Non-compliance can lead to hefty fines and damage to their reputation. DORA highlights how crucial digital resilience is in safeguarding against cyberattacks and operational challenges in today’s financial world.
How can financial institutions effectively manage the costs of complying with the Digital Operational Resilience Act (DORA)?
Financial institutions can keep DORA compliance costs manageable by focusing on a few smart strategies. Start with a thorough risk assessment to pinpoint critical ICT systems, uncover vulnerabilities, and ensure existing frameworks align with DORA's requirements. This approach helps eliminate unnecessary duplication of efforts.
Next, craft a well-defined operational resilience plan. This plan should set clear goals, assign specific responsibilities, and establish a governance structure to oversee compliance efforts. Regular activities like vulnerability checks and incident response drills can boost readiness and lower the risk of falling short on compliance.
By approaching compliance as a chance to improve both innovation and risk management, institutions can transform regulatory hurdles into strategic wins - all while keeping costs under control.
