In an effort to address growing risks such as cyberattacks, IT failures, and third-party service interruptions, the European Union introduced the Digital Operational Resilience Act (DORA), a regulatory framework designed to ensure that financial institutions can withstand, recover from, and adapt to adverse events in the digital landscape. DORA came into force in January 2023 and will apply to all financial institutions as of January 2025.
What is DORA?
The Digital Operational Resilience Act (DORA) is a regulation proposed by the European Union aimed at bolstering the resilience of financial entities to operational disruptions, particularly those stemming from technology risks. It recognises that in a hyperconnected world, financial stability is closely tied to the robustness of the digital systems that financial institutions depend on daily.
DORA's primary objective is to ensure that financial institutions, regardless of their size or complexity, can continue operating effectively even in the face of cyber incidents, technology failures, or external shocks.
It also emphasises the need for these institutions to have clear strategies for managing risks associated with third-party technology providers and ensures that they can report, test, and mitigate disruptions quickly and efficiently.
While there are common themes in the implications of DORA for banks, insurance companies, and investment firms, the specific impacts and compliance challenges vary based on the nature of each industry.
DORA Implications for Banks
For banks, the introduction of DORA places a heightened emphasis on cyber resilience and the ability to maintain operational continuity in the face of digital disruptions. Banks are prime targets for cyberattacks due to the critical role they play in the global financial system and the sensitive data they hold.
Under DORA, banks must take proactive steps to strengthen their IT infrastructure and security protocols to prevent, detect, and recover from cyber incidents.
This means implementing robust frameworks for monitoring, detecting, and responding to threats, while ensuring that all critical banking operations can continue uninterrupted, even in the event of IT failures or external attacks.
Banks will need to invest heavily in cybersecurity tools and infrastructure, enhance incident response capabilities, and ensure that they are adequately prepared for large-scale disruptions, such as ransomware attacks or system outages.
DORA Implications for Insurance Companies
For insurance companies, DORA introduces a new level of accountability when it comes to managing IT and operational risks. The insurance industry deals with vast amounts of sensitive customer data, including personal information, financial details, and health records. Ensuring the protection and integrity of this data is paramount, and DORA sets out specific guidelines to strengthen ICT (information and communication technology) risk management processes.
Under DORA, insurers must evaluate and mitigate risks related to data breaches, system outages, and cyberattacks. This includes implementing robust cybersecurity measures, monitoring systems for potential threats, and having clear processes in place to manage incidents. Insurers are also expected to ensure that their IT infrastructure can withstand digital disruptions while maintaining compliance with privacy and data protection regulations, such as GDPR.
Operational resilience is crucial across all core insurance functions, including:
- Underwriting - ensure that risk assessment models and actuarial systems remain functional during system outages or cyber incidents.
- Claims processing - guarantee the availability of claims management systems to prevent delays in processing claims.
- Customer service – ensure that customers can access services and manage policies online without experiencing outages.
Implications for Investment Firms
Investment firms face significant challenges in ensuring operational resilience and protecting their digital infrastructure, as outlined by DORA. The regulation establishes a framework to manage ICT risks across:
● asset management
● trading systems
● client data
High-frequency trading (HFT) and algorithmic systems are particularly vulnerable to disruptions. DORA mandates operational resilience testing, including stress tests simulating system failures or cyberattacks. These tests identify weaknesses and ensure continued trading during outages. Additionally, firms must secure the data generated by trading platforms, ensuring the integrity of trading algorithms and guarding against manipulation or cyber threats.
Prepare For DORA With Intelligent Automation
Automation has become a crucial asset for improving both efficiency and resilience across various sectors including the financial sector. By enabling the consistent implementation of standardised processes with minimal risk of errors, automation tools can help businesses align more effectively with DORA's requirements.
Incorporating automation allows organisations to not only strengthen their operational resilience but also optimise resource management and demonstrate compliance in an increasingly complex digital environment.
To begin, explore automation tools that can streamline essential processes and reduce operational risks. Look for opportunities to automate routine tasks such as threat detection, incident management, and compliance tracking. Leveraging advanced analytics and machine learning, these tools can also help organisations identify and respond to cybersecurity threats in real time, safeguarding critical data.
To find out how Inpute can help your organisation in the countdown to Dora, book a chat.
