The Digital Operational Resilience Act (DORA) is set to take effect in January 2025. Marking a significant regulatory shift, the act is aimed at enhancing the cybersecurity and operational resilience of financial institutions operating in the European Union. It is crucial to understand the implications of DORA and how your firm can prepare to ensure it meets the act’s requirements.
In this article, Carrie Whamond, Founding Partner, provides a comprehensive guide to help ensure readiness and compliance with DORA.
Understanding DORA
DORA establishes a robust framework for managing IT risks within the financial sector. The regulation mandates that financial entities, including banks, insurance companies, and investment firms, adopt comprehensive measures to enhance their operational resilience and ensure they can withstand, respond to, and recover from IT-related disruptions.
The key components of DORA include:
1. IT Risk Management: Financial entities must implement a stringent IT risk management framework, identifying, assessing, and mitigating risks associated with their digital operations.
2. Incident Reporting: Entities are required to establish clear procedures for reporting IT-related incidents to competent authorities.
3. Digital Operational Resilience Testing: Regular testing of IT systems, including penetration testing and scenario-based testing, to ensure robustness against potential threats.
4. Third-Party Risk Management: Enhanced scrutiny and oversight of third-party IT service providers, ensuring they meet stringent security and operational resilience standards.
There are several key considerations your firm should take into account when preparing for DORA’s implementation. These include:
1. Assessing your current IT risk management practices
Begin with a thorough assessment of your current IT risk management frameworks. Evaluate your existing policies, procedures, and controls against DORA's requirements. Identify gaps and areas that need enhancement to meet the new regulatory standards.
2. Enhancing incident reporting mechanisms
Refining your incident reporting procedures will also be key. It will be important to ensure that you have robust mechanisms in place for detecting, recording, and reporting IT-related incidents promptly. This includes establishing clear communication channels with competent authorities and internal stakeholders.
3. Implementing regular resilience testing
Guide your clients in setting up regular digital operational resilience testing regimes. This should include both internal and external testing, such as vulnerability assessments, penetration testing, and scenario-based testing. Ensure that testing procedures are well-documented and that results are used to inform continuous improvement.
4. Strengthen third-party risk management
Given DORA's emphasis on third-party risk, firms will be required to enhance their oversight of IT service providers. This includes thorough due diligence, establishing robust contractual agreements with clear security and resilience requirements, and performing regular audits of third-party providers. At A1, we have carried out our own due diligence to ensure all our clients are compliant with the new DORA requirements.
5. Develop Comprehensive Training Programs
Operational resilience is not just about systems and processes; it involves people and ensuring that your firm invests in comprehensive training programs for your staff is key. At A1, we help our clients to develop training programs on DORA requirements, cybersecurity best practices, and incident response protocols.
DORA represents a significant shift in how financial institutions manage IT risks, emphasising the importance of operational resilience. As a result, and in anticipation of DORA's implementation in January 2025, proactive preparation and strategic planning are therefore key. Firms need to consider the five factors above, and by taking these steps now, firms can achieve compliance and safeguard their operations against the myriad of IT-related risks in today's digital world.
At A1, we are helping our clients prepare for the new requirements coming into place early next year, and our access to advanced technologies means we can leverage their firm’s capability to manage DORA requirements more effectively. If you would like to learn more about how we can assist you, contact the team: info@alternitone.com
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