Who Does the DORA Regulation Apply To? The Complete Overview

Introduction

The Digital Operational Resilience Act (DORA) is a European law that underscores the financial significance and strategic role of digital infrastructure for the financial sectors. The regulation sets clear requirements for financial companies according to Article 2(1), which are of critical importance as they encompass the fundamental responsibility and duty to identify, limit, and manage risks related to information and communication technologies (ICT). However, many organizations have the misconception that implementing DORA can be seen as a simple checklist exercise. This mindset can lead not only to misinterpretations but also to serious consequences such as fines, audit failures, operational disruptions, and damage to corporate reputation.

The importance of this regulation for European financial service providers is immediate, as it defines the legal framework for ICT infrastructure and risks that are crucial for the stability and operation of financial markets and services. In an industry where confidentiality, integrity, and availability of data and systems are paramount, billions of euros and the credibility of companies depend on compliance with these regulations. Therefore, reading this article provides valuable insights into the scope of DORA and the implications that flawed implementation can have.

The Core Problem

The DORA regulation has far-reaching implications for the compliance strategies of financial companies. Beyond surface descriptions, Article 6(1) of the regulation addresses the need to establish comprehensive risk management for ICT. This means that companies must not only review the technical aspects of information security but also examine and optimize the organizational and strategic components. The actual costs of inadequate implementation are high. Companies that do not comply can face fines of up to €10 million (Article 40(5)) or up to 2% of their annual total revenue (Article 40(6)). Additionally, audits may fail, leading to a loss of trust and potentially a loss of customers and business opportunities.

However, most organizations believe they can meet the requirements of DORA with a minimalist approach. Such companies ignore the necessity of conducting extensive audits to ensure that their IT systems and processes comply with the regulations. This misjudgment can lead to insufficient risk assessment and negatively impact compliance and business processes. Specifically, this means that companies may lack the necessary transparency and control to identify and address threats and disruptions in a timely manner.

Why This Is Urgent Now

The need to take the DORA regulations seriously has intensified in recent years. The increasing digitization of financial services and the associated rise in cyberattacks have further emphasized the importance of robust ICT risk management. The European Banking Authority (EBA) has recently increased its emphasis on the importance of operational resilience, underscoring the urgency of correct implementation of DORA.

Furthermore, the market has put pressure on companies. Customers are increasingly demanding compliance certifications to ensure that their data and investments are secure. Companies that do not meet DORA requirements find themselves at a competitive disadvantage compared to their rivals, as they cannot offer the same level of trust and security. The gap between the position most organizations are in and the position they should be in is significant. A non-compliant financial company may not only struggle to fulfill its legal obligations but also lag behind competitors that have demonstrably adapted their technical and organizational procedures to the latest requirements.

The Solution Framework

Implementing the DORA regulation requires a step-by-step approach based on clear action recommendations and detailed implementation details. First, your organization should develop a compliance program specifically tailored to the requirements of DORA. This begins with a thorough analysis of the articles of the law and the resulting requirements for ICT risk assessment and management.

Article 6(1) of DORA requires financial companies to maintain an ICT risk management framework. A good framework includes the identification and assessment of risks, the development of risk mitigation measures, and the continuous monitoring of implementation. To achieve this, you should consider the following:

1. Risk Identification and Assessment: Detailed analysis of potential ICT risks, including impacts on business continuity, data protection, and customer communication.

2. Risk Mitigation Measures: Development of a comprehensive risk mitigation plan that includes both technical and organizational measures tailored to the specific needs of your organization.

3. Monitoring and Reporting: A system for continuous monitoring of compliance measures and a clear reporting structure that ensures all relevant stakeholders are informed of the current status.

4. Employee Engagement and Training: Training programs to raise employee awareness of the importance of compliance and the specific requirements of DORA.

A compliance program that includes these aspects is generally considered "good," as opposed to programs that merely meet the minimal requirements to "just" pass audits.

Common Mistakes to Avoid

Organizations tend to make some common mistakes when implementing the DORA regulation. The three main mistakes are:

1. Insufficient Risk Assessment: Many organizations conduct a superficial risk assessment without delving deeper into potential impacts. This leads to important risks being overlooked or underestimated. Instead, you should conduct a comprehensive risk assessment that covers all aspects of your ICT infrastructure.

2. Lack of Documented Compliance Measures: Without detailed documentation of your compliance measures, you may find it difficult to demonstrate compliance with DORA requirements. You should establish a system that documents the development, implementation, and monitoring of your compliance measures.

3. Insufficient Employee Engagement: If your employees are not aware of the importance of compliance, this can lead to disruptions in compliance measures. Compliance training programs and raising awareness of the significance of DORA for your organization are crucial to avoid this mistake.

Tools and Approaches

The implementation of compliance regulations such as DORA can be approached in various ways. Each method has its own advantages and disadvantages, and the best method depends on the specific requirements of your organization.

1. Manual Approach: This method is straightforward and does not require significant investment in technology. However, it can be time-consuming and error-prone. It is best suited for smaller organizations or those that do not yet have sufficient resources to implement a technological solution.

2. Spreadsheet/GRC Approach: This method is better for organizing and accessing data but may complicate integration with your existing IT systems and limit process automation. It is a better choice for organizations that already have some infrastructure in place and want to coordinate their compliance activities.

3. Automated Compliance Platforms: An automated compliance management system like Matproof can significantly ease compliance activities and enable process automation. It is important to consider the following when selecting a compliance platform:

• The platform should support all relevant compliance standards, including DORA, SOC 2, ISO 27001, GDPR, and NIS2.
• It should offer AI-driven policy creation in both German and English to meet the needs of an internationally operating organization.
• Automatic evidence collection from cloud providers is another important aspect to reduce the burden of proof.
• The platform should provide an endpoint compliance agent for device monitoring to ensure compliance at local levels.
• A 100% EU data residency is essential to meet the EU's data protection requirements. Matproof offers all these features and is specifically designed for European financial service providers.

It is important to understand that automation is not always the solution. It is particularly helpful in reducing the manual tasks associated with compliance monitoring and can help increase the efficiency and accuracy of your compliance activities. Nevertheless, you should not underestimate the manual aspects of compliance, especially in areas where individual assessment is required.

Getting Started: Your Next Steps in Detail

As a compliance professional, CISO, or IT leader, you know that getting started with the implementation of the DORA regulation requires thorough planning. Here are five steps you can follow this week:

1. Compliance Risk Analysis: Start with a comprehensive risk analysis to identify the potential impacts of the DORA regulation on your organization. Consider Articles 6, 8, and 11 of the regulation, which define important requirements for the ICT risk management framework and data protection.

2. Basic Documentation: Create a list of existing compliance frameworks, policies, and procedures related to DORA. This can help you review the current compliance status and identify important changes.

3. Training and Awareness: Create comprehensive training and awareness programs for all relevant employees, especially for compliance and IT teams. The EU publication "Digital Operational Resilience for the Financial Sector" provides a solid foundation for such training.

4. Engage External Help: If you are unsure whether you can handle the DORA requirements on your own or if you need external expertise, you should make a decision now. This can vary depending on the scope and complexity of your organization.

5. A Quick Win: Within the next 24 hours, you can conduct an initial assessment of your data protection and determine what adjustments are necessary to meet the requirements of Article 24 of DORA.

For a detailed approach and additional resources, we recommend the official EU and BaFin publications, particularly the "Explanatory Report on the DORA" and the BaFin guidelines on information security.

FREQUENTLY ASKED QUESTIONS

Question 1: Which companies are subject to DORA?
DORA applies to all financial companies and service providers operating in the EU. Article 2 of the regulation lists the affected sectors such as banks, insurance companies, asset management companies, and numerous others that provide financial services. The scope is broad, and even publicly traded companies that provide services fall under the regulation.

Question 2: Do I have to implement all DORA requirements at once?
No, DORA contains phased implementation deadlines. Article 92 of the regulation sets detailed deadlines for implementing the requirements. This allows for a structured and manageable implementation, with requirements for ICT security and data protection needing to be implemented in stages over the coming years.

Question 3: How can I ensure that my organization complies with DORA requirements?
A key aspect is the continuous monitoring and assessment of compliance. Article 6 of DORA requires an ICT risk management framework that must be regularly reviewed and updated. Additionally, you should conduct internal and external audits to ensure compliance with the regulations.

Question 4: Do I need special software to comply with DORA?
Yes, many organizations require specialized software to meet DORA requirements. This can help identify, assess, and manage ICT risks better while preparing and storing compliance data.

Question 5: Can non-compliance with the DORA regulation lead to penalties?
Yes, Article 84 of DORA outlines a range of penalties that can be imposed by national supervisory authorities if an organization violates the regulations. Penalties can include fines, requirements, or even temporary operational restrictions.

Key Takeaways

In this article, we provided a complete overview of the scope of the DORA regulation and its significance for financial companies and service providers in the EU. Here are the main points:

• DORA applies to all financial companies and service providers in the EU, including banks, insurance companies, and asset management companies.
• It is crucial to understand the scope of the regulation and implement the requirements in a timely manner.
• A careful compliance risk analysis, training, and structured reviews are essential to comply with DORA.
• Non-compliance can lead to severe penalties from national supervisory authorities.

If you need assistance with implementing the DORA regulation, Matproof can help. Matproof is a compliance automation platform specifically designed for European financial service providers that simplifies DORA implementation. Visit our website to learn more about our services and how we can assist you. You can also request a free assessment by clicking the following link: Matproof Contact.