How DORA Will Affect Banks and their Balance Sheet Management Vendors

The European Union’s Digital Operational Resilience Act (DORA), set to be enforced from January 17, 2025, is reshaping how financial institutions manage operational resilience and cyber risk. Designed to protect EU-based financial systems from cyberattacks and data breaches, DORA introduces stringent requirements for risk management, incident reporting, resilience testing, and third-party oversight.
For banks and their critical service providers, including Balance Sheet Management (BSM) vendors, DORA demands proactive measures to ensure compliance and mitigate operational disruptions. In this post, we explore how banks can comply with DORA, strengthen ICT risk management, and collaborate with their BSM technology partners to build resilience against cyber threats.

Key Provisions of DORA

DORA establishes a comprehensive framework for digital operational resilience across the EU’s financial sector, applying to banks, insurers, payment providers, and other financial entities. It also extends to critical third-party providers offering essential digital and operational services, including BSM vendors. Key provisions of DORA include:

1. Risk Management Requirements: Financial entities and critical service providers must implement frameworks to identify, manage, and mitigate operational risks.
2. Incident Reporting Obligations: Significant operational disruptions or cyber incidents must be reported within specific timelines.
3. Oversight of Third-Party Providers: Certain vendors are designated as critical, subject to direct supervision by European Supervisory Authorities (ESAs).
4. Operational Continuity Testing: Financial entities must regularly test systems and processes to ensure resilience during disruptions.

Impact on Banks

For banks, DORA marks a shift in how they manage operational and digital risks. Compliance requires integrating resilience into core operations and reevaluating vendor relationships to meet regulatory standards.
Key considerations for banks include:

• Vendor Risk Management: Banks must assess BSM vendors for compliance with DORA’s resilience standards. This includes due diligence, renegotiating contracts with resilience clauses, and ensuring vendors are audit-ready.
• Incident Management: Banks should collaborate with vendors to establish effective incident detection and reporting mechanisms to avoid regulatory penalties.
• Operational Testing: Ensuring operational continuity during stress scenarios requires working with vendors to conduct regular resilience testing.
  
  

Implications for Balance Sheet Management Vendors

BSM vendors are crucial to banks' financial risk management, offering solutions to optimize liquidity, manage interest rate risk, perform financial planning and meet regulatory obligations. Under DORA, these vendors face heightened scrutiny and increased responsibilities.

1. Enhanced Due Diligence: Banks must conduct thorough assessments of their vendors’ resilience capabilities. BSM providers must demonstrate strong cybersecurity practices, disaster recovery plans, and comprehensive risk management strategies.
2. Incident Reporting Requirements: DORA requires vendors to promptly report operational disruptions. BSM vendors must establish systems to detect, manage, and report incidents, ensuring alignment with banks' regulatory obligations.
3. Regulatory Oversight: Critical service providers will be directly supervised by the ESAs, which means regular audits and inspections, with enforcement actions for non-compliance.
4. Competitive Opportunities: DORA presents challenges but also opportunities. Vendors who proactively adapt, invest in resilience, and demonstrate compliance will gain a competitive edge as banks seek trusted partners aligned with regulatory requirements.

How ISO 27001 Simplifies DORA Compliance

One way for BSM vendors to streamline compliance with DORA is by adopting ISO 27001, the global standard for information security management systems (ISMS). ISO 27001 offers a structured approach to managing information security risks, closely aligning with DORA’s objectives.

1. Comprehensive Risk Management: ISO 27001 mandates systematic risk assessments, directly supporting DORA’s focus on proactive risk management. Certification shows a commitment to identifying and addressing vulnerabilities.
2. Incident Management and Reporting: ISO 27001 includes protocols for managing security incidents from detection to resolution. These can be adapted to meet DORA’s stringent reporting timelines.
3. Third-Party Assurance: DORA requires banks to conduct thorough vendor due diligence. ISO 27001 certification provides a globally recognized benchmark of security and operational resilience, easing vendor selection for banks.
4. Cybersecurity Alignment: ISO 27001 emphasizes robust cybersecurity measures, including access controls, encryption, and continuous monitoring—critical elements for safeguarding against digital risks in alignment with DORA’s requirements.

Conclusion

DORA is a game-changer for the financial sector, introducing a regulatory framework that prioritizes operational resilience and third-party oversight. For banks, compliance involves rethinking vendor relationships and risk management strategies. For BSM vendors, DORA presents both challenges and opportunities to differentiate through compliance and resilience.
Adopting frameworks like ISO 27001 can simplify compliance, enabling vendors to position themselves as leaders in operational resilience. For banks, partnering with trusted risktech vendors like Mirai, which are ISO 27001 certified and have robust cybersecurity measures, ensures the utmost financial data protection.
At Mirai, we are committed to safeguarding our clients' assets and information. Our Information Security Management System (ISMS), certified to ISO 27001, ensures the integrity, confidentiality, and availability of information. Our cybersecurity strategy includes:

• Continuous Improvement: Regular updates to hardware and software solutions to stay ahead of evolving threats.
• Ethical Hacking Audits: Annual internal and external audits to identify and address vulnerabilities proactively.
• Dedicated Cybersecurity Officer: A specialized officer overseeing our security policies and practices.
• Resilience Plan: A comprehensive business continuity plan to ensure rapid recovery during disruptions.
• CSPM and Compliance Automation Platform: Different platforms to verify any policy, security or compliance requirement for DORA and ISO27001.

Partnering with a vendor like Mirai helps banks comply with DORA’s requirements while ensuring that financial data is protected by industry-leading standards. Mirai’s focus on continuous improvement, proactive risk management, and operational resilience gives banks the confidence they need in a rapidly changing regulatory environment.
As DORA reshapes the regulatory landscape, proactive adaptation will be essential for thriving in this new era of digital resilience. By embracing these changes and partnering with compliant, secure providers like Mirai, banks can not only meet regulatory requirements but also strengthen their operational frameworks, ensuring financial stability and customer trust.