Enhancing Digital Operational Resilience in the EU Financial Sector

The Digital Operational Resilience Act (DORA) represents a significant step towards ensuring the stability and security of the EU financial sector in the face of an increasingly digital landscape. With the rapid advancement of technology and the growing reliance on digital systems and services, it has become imperative to address the potential vulnerabilities and risks associated with digital operations.
The European Supervisory Authorities (ESAs) have recognized the need to strengthen the information and communication technology (ICT) and third-party risk management frameworks within the financial sector. These frameworks play a crucial role in safeguarding the integrity of financial institutions’ digital infrastructure and protecting sensitive data from cyber threats and operational disruptions.
Under the new set of final draft technical standards published by the ESAs, financial institutions will be required to implement robust ICT risk management frameworks. This includes conducting regular risk assessments, developing incident response plans, and establishing effective governance and oversight mechanisms. By enhancing these frameworks, the ESAs aim to ensure that financial institutions are well-prepared to identify, mitigate, and respond to potential ICT-related risks and incidents.
Furthermore, the ESAs have also focused on strengthening the third-party risk management frameworks within the financial sector. With the increasing reliance on third-party service providers for various critical functions, it is essential to establish stringent risk management processes to address any potential vulnerabilities introduced by these external entities. The new standards will require financial institutions to conduct thorough due diligence assessments of their third-party providers and implement robust contractual arrangements to ensure compliance with security and resilience requirements.
In addition to ICT and third-party risk management, the ESAs have also emphasized the importance of incident reporting frameworks. Prompt and accurate reporting of incidents is crucial for effective risk management and the identification of potential systemic risks. The new standards will require financial institutions to establish clear incident reporting procedures and ensure timely communication of significant incidents to the relevant authorities. This will enable a coordinated response and facilitate the sharing of information to enhance the overall resilience of the financial sector.
Overall, the publication of the final draft technical standards under DORA represents a significant milestone in enhancing the digital operational resilience of the EU financial sector. By addressing the key areas of ICT and third-party risk management, as well as incident reporting, the ESAs aim to strengthen the sector’s ability to withstand and recover from potential disruptions. The implementation of these standards will not only protect financial institutions and their customers but also contribute to the overall stability and trust in the EU financial system.

Final Draft Technical Standards to Strengthen ICT Risk Management

The joint final draft technical standards include regulatory technical standards (RTS) on ICT risk management framework and simplified ICT risk management framework. These RTS identify additional elements related to ICT risk management to harmonize tools, methods, processes, and policies. They complement the provisions outlined in DORA and specify the key elements that financial entities subject to the simplified regime and of lower scale, risk, size, and complexity should have in place. The RTS ensure harmonized ICT risk management requirements across different financial sectors.
The regulatory technical standards (RTS) on ICT risk management framework aim to provide a comprehensive framework for financial entities to effectively manage and mitigate risks associated with information and communication technology. These standards outline the key elements that financial entities should have in place to ensure the security, integrity, and availability of their ICT systems.
The RTS specify the requirements for the governance and oversight of ICT risk management, including the establishment of clear roles and responsibilities, the implementation of effective risk management processes, and the establishment of appropriate risk management policies and procedures. These standards also require financial entities to conduct regular risk assessments to identify and evaluate potential ICT risks and to implement appropriate controls to mitigate these risks.
In addition to the RTS on ICT risk management framework, the joint final draft technical standards also include a simplified ICT risk management framework. This framework is designed for financial entities of lower scale, risk, size, and complexity, who may not have the same resources and capabilities as larger institutions. The simplified framework provides a more streamlined approach to ICT risk management, while still ensuring that these entities have the necessary controls in place to protect their ICT systems.
The simplified ICT risk management framework outlines the key elements that financial entities subject to this regime should have in place, including the establishment of a risk management function, the implementation of risk management processes, and the development of risk management policies and procedures. While the requirements under the simplified regime may be less stringent than those under the full ICT risk management framework, they still provide a solid foundation for managing and mitigating ICT risks.
Overall, the joint final draft technical standards on ICT risk management aim to harmonize and strengthen the requirements for financial entities across different sectors. By providing a comprehensive framework for managing ICT risks, these standards will help to ensure the stability and security of the financial system as a whole. Financial entities will need to carefully review and implement these standards to meet the regulatory requirements and to effectively manage their ICT risks.

Criteria for the Classification of ICT-Related Incidents

The final draft technical standards also include RTS on criteria for the classification of ICT-related incidents. These RTS specify the criteria for classifying major ICT-related incidents, the approach for classification, materiality thresholds, criteria for determining significant cyber threats, and the sharing of incident details among competent authorities in different member states. The aim of these standards is to establish a harmonized and simple process for classifying incident reports throughout the financial sector.
When it comes to classifying major ICT-related incidents, the RTS outline a set of criteria that must be met in order for an incident to be considered major. These criteria take into account the impact of the incident on the financial sector, the potential harm to consumers and investors, and the potential disruption to the overall stability of the financial system. By establishing clear and objective criteria, the RTS ensure that incidents are classified consistently across different member states, allowing for effective coordination and response.
In addition to defining the criteria for classifying incidents, the RTS also provide guidance on the approach for classification. This includes the use of risk-based assessments to determine the severity of an incident and the potential impact it may have on the financial sector. By taking a risk-based approach, the RTS ensure that resources are allocated to address the most significant threats and vulnerabilities, while also allowing for a proportionate response to less severe incidents.
Materiality thresholds are another important aspect addressed in the RTS. These thresholds help to determine which incidents should be reported to competent authorities and which can be managed internally by financial institutions. By setting clear materiality thresholds, the RTS ensure that reporting requirements are not overly burdensome for financial institutions, while still ensuring that significant incidents are appropriately addressed and mitigated.
Furthermore, the RTS provide criteria for determining significant cyber threats. This includes factors such as the sophistication of the threat actor, the potential impact on critical infrastructure, and the potential for widespread harm to consumers and investors. By identifying and classifying significant cyber threats, the RTS enable competent authorities to prioritize their response efforts and allocate resources accordingly.
Lastly, the RTS emphasize the importance of sharing incident details among competent authorities in different member states. This sharing of information allows for a more comprehensive understanding of the threat landscape and facilitates effective coordination and collaboration in responding to incidents. It also helps to identify trends and patterns in cyber threats, enabling proactive measures to be taken to prevent future incidents.
In conclusion, the RTS on criteria for the classification of ICT-related incidents play a crucial role in establishing a harmonized and simple process for classifying incident reports throughout the financial sector. By defining clear criteria, providing guidance on classification approaches, setting materiality thresholds, determining significant cyber threats, and promoting information sharing, these standards ensure a consistent and effective response to ICT-related incidents across different member states. The policy on ICT third-party service providers is crucial in today’s digital landscape, where financial entities heavily rely on external vendors to manage their technology infrastructure and services. As technology continues to advance at a rapid pace, financial institutions are increasingly outsourcing their ICT needs to specialized third-party service providers.
The final draft technical standards outline the governance arrangements, risk management, and internal control framework that financial entities should implement when engaging with these TPPs. This policy aims to strike a balance between leveraging the expertise and capabilities of external providers while ensuring that financial entities retain control over their operational risks, information security, and business continuity.
Under these RTS, financial entities are required to establish robust governance arrangements to oversee the relationship with TPPs. This includes clearly defining roles, responsibilities, and accountability for managing the risks associated with outsourcing ICT services. Additionally, financial entities must conduct thorough due diligence on potential TPPs to assess their capabilities, reliability, and compliance with applicable laws and regulations.
Risk management is another critical aspect addressed in the policy. Financial entities must identify, assess, and manage the risks associated with outsourcing ICT services. This includes conducting regular risk assessments, implementing appropriate controls, and monitoring the performance of TPPs to ensure compliance with agreed-upon service levels and security standards.
Furthermore, the RTS emphasize the need for financial entities to establish an internal control framework that provides oversight and assurance over the activities of TPPs. This includes implementing mechanisms to monitor and evaluate the performance of TPPs, conducting periodic audits, and maintaining clear lines of communication to address any issues or concerns that may arise.
The overarching objective of this policy is to ensure that financial entities maintain control and accountability over their ICT operations, even when outsourcing to third-party service providers. By establishing robust governance arrangements, conducting thorough due diligence, implementing effective risk management practices, and maintaining an internal control framework, financial entities can mitigate the potential risks associated with outsourcing ICT services.
In conclusion, the policy on ICT third-party service providers outlined in the final draft technical standards is a vital component of ensuring the security, reliability, and continuity of financial entities’ ICT operations. By adhering to these standards, financial institutions can strike a balance between leveraging the expertise of external providers and maintaining control over their operational risks, information security, and business continuity. The register of information serves as a comprehensive repository of data that financial entities need to maintain and update regularly. It includes essential details about their contractual arrangements with ICT third-party service providers. These templates, established by the implementing technical standards (ITS), ensure consistency and standardization in the information gathered.
The register of information plays a vital role in the overall third-party risk management framework of financial entities. It serves as a central hub where all relevant information about the contractual relationships with ICT third-party service providers is stored. This includes details such as the scope of services provided, the nature of the relationship, the criticality of the services, and any potential risks associated with the arrangement.
By maintaining an up-to-date register of information, financial entities can effectively manage and mitigate the risks associated with their reliance on third-party service providers. It allows them to have a clear understanding of the potential vulnerabilities and exposures that may arise from these relationships. This knowledge enables financial entities to implement appropriate risk management measures and controls to safeguard their operations and protect their customers’ interests.
Furthermore, the register of information serves as a valuable tool for competent authorities and the European Supervisory Authorities (ESAs) in their supervisory role. It provides them with a comprehensive overview of financial entities’ compliance with the Digital Operational Resilience Act (DORA) and their adherence to the regulatory requirements set forth by the ESAs. By reviewing the register, competent authorities can assess the effectiveness of financial entities’ risk management practices and identify any areas of concern that require further attention or intervention.
Additionally, the register of information plays a crucial role in the designation of critical ICT third-party service providers subject to the DORA oversight regime. The information contained in the register allows competent authorities and the ESAs to identify service providers that play a significant role in the provision of critical services to financial entities. These designated critical service providers are subject to enhanced oversight and supervision to ensure the resilience and stability of the financial system.
In conclusion, the register of information is an essential component of the third-party risk management framework for financial entities. It serves as a central repository of data, ensuring consistency and standardization in the information gathered. By maintaining an up-to-date register, financial entities can effectively manage and mitigate the risks associated with their reliance on third-party service providers. Moreover, the register assists competent authorities and the ESAs in their supervisory role and the designation of critical service providers subject to the DORA oversight regime.

Legal Basis, Public Consultation, and Next Steps

These final draft technical standards have been developed in accordance with the provisions of DORA (Regulation (EU) 2022/2554), specifically articles 15, 16(3), 18(3), 28(9), and 28(10). DORA, which stands for Digital Operational Resilience Act, is a regulation that aims to enhance the digital operational resilience of the financial sector in the European Union.
To ensure transparency and gather input from stakeholders, a public consultation on the draft technical standards was conducted from 19 June to 11 September 2023. This consultation provided an opportunity for market participants, including financial institutions, technology providers, and industry associations, to express their views and provide feedback on the proposed standards. The response to the consultation was overwhelming, with over 420 submissions received.
The feedback received during the public consultation played a crucial role in shaping the final draft technical standards. Market participants highlighted areas where simplification, streamlining of requirements, and greater proportionality were needed. Additionally, sector-specific concerns were addressed to ensure that the standards are applicable and effective across different segments of the financial industry.
Taking into account the valuable input received, the final draft technical standards have now been submitted to the European Commission for review. The European Commission, as the executive body of the European Union, will carefully assess the standards and consider their adoption in the coming months. This review process ensures that the standards meet the necessary legal and regulatory requirements and align with the overall objectives of DORA.
Once adopted, these technical standards will play a significant role in strengthening the digital operational resilience of the EU financial sector. They will provide a framework for financial institutions to enhance their cybersecurity measures, improve their ability to withstand cyber threats, and ensure the continuity of critical services. By establishing clear and harmonized standards, the European Union aims to create a more robust and secure digital environment for the financial industry, ultimately benefiting both businesses and consumers.
In conclusion, the development of these final draft technical standards under the legal basis of DORA, the extensive public consultation process, and the upcoming review by the European Commission all contribute to the continuous improvement of digital operational resilience in the EU financial sector. The collaboration between regulators, market participants, and other stakeholders demonstrates the commitment to address the evolving challenges posed by digitalization and cybersecurity threats.