DORA Regulation: Hidden Technical Requirements Financial Firms Must Know

January 17, 2025 marks a pivotal moment that will change how 21 different types of financial entities handle their digital operations. This detailed framework impacts banks, insurance companies, and investment firms. It introduces strict requirements for ICT risk management and operational resilience.

DORA compliance represents a shift from conventional risk management approaches. The regulation acknowledges that ICT incidents could destabilize the entire financial system, even with proper capital allocation to standard risk categories. Financial entities must prepare for sweeping changes. They need to maintain detailed ICT third-party service provider registers by January 2025. Their first Registers of Information must be submitted by April 2025.

This piece gets into the hidden technical requirements of EU DORA. It breaks down the complex framework to give you useful insights. You'll learn about everything from mandatory infrastructure specifications to advanced testing methods. This knowledge will help your organization implement the necessary changes before the regulation takes effect.

DORA Regulation Framework: Beyond Surface-Level Compliance

The EU's Digital Operational Resilience Act creates a single legal framework that changes how financial entities manage ICT risks. DORA became active on January 16, 2023. Financial organizations must meet its technical requirements by the set deadline.

Key Dates and Enforcement Timeline for EU DORA

The DORA implementation roadmap includes these important dates:

• January 16, 2023: DORA became active
• January 17, 2024: First set of regulatory technical standards arrived
• July 17, 2024: Second set of policy standards and Delegated Act on Oversight will be ready
• January 17, 2025: DORA applies to all entities within its scope
• April 2025: Financial entities need to submit details about their critical ICT service providers
• July 2025: European Supervisory Authorities (ESAs) will finish their assessments and let critical ICT third-party service providers know their status

Financial institutions have about two years from DORA's start date to meet its requirements. The second set of standards comes out in July 2024, leaving organizations just six months to get everything ready before January 2025.

Scope of Financial Entities Under DORA Regulation

DORA applies to more than 22,000 entities across the EU. Article 2 lists 20 types of financial entities that must comply:

• Credit institutions and payment institutions
• Electronic money institutions
• Investment firms and trading venues
• Crypto-asset service providers and issuers of asset-referenced tokens
• Insurance and reinsurance undertakings
• Central securities depositories and central counterparties
• Trade repositories and securitization repositories
• Credit rating agencies
• Data reporting service providers
• Crowdfunding service providers
• Asset managers and pension funds

The regulation also covers ICT third-party providers working with these financial entities, especially those labeled as "critical" (CTPPs). ESAs decide who gets this label based on their importance to the system, how much others depend on them, and whether they can be replaced easily.

DORA takes a balanced approach. Article 4 says implementation should match each entity's size, risk profile, and business model. This means the rules will affect organizations differently based on their current ICT risk management practices.

How DORA Is Different from Previous ICT Regulations

DORA changes ICT regulatory frameworks in several important ways:

Single Standard: DORA replaces the scattered rules for ICT resilience across EU countries. Now financial entities follow one consistent standard instead of different national requirements.

ICT-Specific Focus: Traditional frameworks mostly looked at capital allocation. DORA recognizes that ICT problems can threaten financial stability even with good capital reserves. The rules target digital threat resilience rather than just financial safety nets.

Broader Oversight: DORA lets regulators directly supervise critical ICT third-party providers. This creates a complete system for monitoring financial services technology. European Supervisory Authorities (EBA, ESMA, EIOPA) lead the oversight of CTPPs across Europe.

New Technical Rules: DORA requires several specific measures:

• Risk management systems to find, assess and handle ICT-related risks
• Systems to detect, report and respond to incidents quickly
• Digital operational resilience testing
• Detailed records of ICT third-party service providers

DORA takes priority over both the Network Information Security (NIS) Directive and Critical Entity Resilience (CER) Directive if their rules conflict.

Hidden ICT Governance Requirements in DORA

DORA's technical requirements have a hidden layer of governance rules that financial entities often miss. These rules bring fundamental changes to ICT governance structures. Financial entities should pay attention to these changes well before January 2025.

Mandatory ICT Role Assignments and Reporting Lines

DORA requires specific organizational structures with clear ICT risk management responsibilities. Financial entities must assign a dedicated control function to oversee ICT risk. This control function must manage to keep "an appropriate level of independence" to avoid conflicts of interest in technology risk management.

DORA requires financial entities to use a strict "three lines of defense" model or similar internal risk framework. The model works like this:

1. First line (operational functions): Day-to-day ICT risk management
2. Second line (risk management functions): Independent oversight and monitoring
3. Third line (internal audit): Independent assurance activities

Financial entities must set up clear reporting channels to make notifications easier to the management body about major ICT incidents and third-party arrangement changes. DORA also says financial entities should either have someone watch over ICT service provider arrangements or let a senior manager track risk exposure and documentation.

Documentation Standards for ICT Risk Management

DORA sets out detailed documentation rules that need regular updates and reviews. Teams should review the ICT risk management framework really well at least once a year. More reviews happen after big ICT incidents or when supervisors find issues. A formal report must be ready at the time authorities ask for it.

The rules say financial entities must create and keep documented policies, standards, and procedures for ICT risk identification, monitoring, reduction, and reporting. Regular reviews ensure these documents work, and teams must keep evidence like board minutes and audit reports for compliance.

DORA says entities must create a complete digital operational resilience strategy as part of their ICT risk framework documents. This strategy shows how to implement everything and might include an "integrated ICT multi-vendor strategy" that shows service provider dependencies and explains buying decisions.

Board-Level Technical Knowledge Requirements

DORA puts the ultimate responsibility for ICT risk management on the management body (board of directors). Article 5 states that the board has "ultimate responsibility" for the entity's ICT risk management. No individual, group, or third party can take over this responsibility.

The board's ICT duties include:

• Defining and approving the entity's DORA strategy
• Setting up proper governance arrangements with clear roles
• Watching over ICT business continuity arrangements
• Reviewing and approving ICT audit arrangements
• Making sure there are enough resources for DORA compliance
• Approving and checking third-party ICT arrangements regularly

DORA requires board members to know enough about ICT risks to do their job. Regulators will think about "sufficient knowledge and skills in ICT risks" when deciding if board members are suitable. This marks a big change as technical skills become a must-have rather than just nice-to-have.

Board members just need to understand simple technical parts of ICT security, why resilience matters, specific ICT risks their organization faces, and how to reduce these risks. DORA makes ICT security training mandatory for everyone, including board members.

Technical Infrastructure Specifications for DORA Compliance

DORA's technical infrastructure requirements outline the architectural and system specifications that financial entities need to implement by January 2025. These specifications are the foundations of operational resilience that go way beyond the reach and influence of policy frameworks into real system implementations.

Network Segmentation and Architecture Requirements

DORA regulation needs sophisticated network segmentation to isolate affected components right away during cyber incidents. Financial entities should design their network infrastructure so teams can "instantaneously sever" connections to stop problems from spreading, especially in interconnected financial processes. This requirement protects financial systems from widespread failures.

DORA lists these technical parameters for network architecture:

• Segregation and segmentation of ICT systems based on how critical they are, their classification, and the overall risk profile of assets using those systems
• Detailed documentation of network connections and data flows throughout the organization
• Dedicated administration networks kept separate from operational systems to boost security
• Network access controls that block unauthorized devices or endpoints that don't meet security requirements
• Encrypted network connections for data moving through corporate, public, domestic, third-party, and wireless networks

Financial entities should review their network architecture and security design yearly. More frequent reviews become necessary after big changes or incidents. Organizations that support critical functions must check their firewall rules and connection filters every six months.

System Redundancy Technical Specifications

DORA requires financial entities to keep redundant ICT capacities with enough resources and capabilities to keep business running. This goes beyond simple backup systems into reliable resilience architecture.

Central securities depositories must have a secondary processing site with these technical features:

1. A location far enough from the main site to have different risk exposure
2. The ability to keep critical functions running just like the main site
3. Quick access for staff to maintain service when the main site goes down

The rules also say financial entities need both primary and backup communication systems. This dual setup lets organizations keep talking even during cyber incidents through separate communication systems on independent networks.

Small businesses can decide what redundant systems they need based on their risk profile, but they still need some backup plans.

Data Backup Technical Parameters

DORA sets strict rules for data backup and restoration. Financial entities must create backup policies that spell out:

• What data needs backing up
• How often backups should happen based on data's importance and privacy needs
• Step-by-step restoration procedures with proven methods

Organizations must set up backup systems they can start quickly using documented steps. When restoring data, they need ICT systems physically and logically separate from source systems to avoid contamination.

DORA says recovery must be secure and quick. Financial entities must test their backup procedures regularly to make sure they work. These tests help build confidence that data protection will work when needed.

Organizations must look at how critical each function is and how it might affect market efficiency when setting recovery goals. After recovery, teams must run multiple checks to ensure data stays intact.

These technical rules work together to give financial entities reliable protection against ICT problems, which helps keep the EU financial sector's digital operations strong.

Advanced Testing Requirements Under DORA Framework

DORA regulation brings in strict advanced testing protocols that financial firms just need to put in place to keep their digital systems reliable. These rules go way beyond regular security testing. They just need detailed assessment methods to confirm ICT systems can handle sophisticated threats.

TLPT Technical Specifications and Methodologies

Threat-Led Penetration Testing (TLPT) is the life-blood of DORA's advanced testing requirements. It's now a must for designated financial entities. Article 26 says financial firms should run TLPT at least once every three years. This testing framework builds on the existing TIBER-EU model with several vital changes.

TLPT methods work in three main phases:

• Preparation phase: Setting the scope, building control teams, and picking testers
• Testing phase: Covers threat intelligence, red team test planning, and active testing
• Closure phase: Includes purple teaming exercises and plans to fix issues

The active testing phase should run at least 12 weeks to copy what sneaky threat actors might do. Financial entities should spot all their key ICT systems that support critical functions. They need to figure out which critical functions should get TLPT coverage. After that, designated authorities should confirm the exact TLPT scope.

Red teams must have certified testers with specific qualifications. Each team needs a manager with five years of experience and at least two more testers. These additional testers should have two years of experience in penetration testing.

Testing Environment Isolation Requirements

DORA says you must keep ICT production and testing environments separate. This separation helps prevent unauthorized access, changes, or data loss in production environments.

Sometimes, financial entities can test in production environments if they:

• Show proof why such testing is needed
• Get the right approvals from admin
• Set up better risk controls during testing

For TLPT, financial entities should put reliable risk management controls in place. These controls help reduce potential risks to data, damage to assets, and disruption to critical functions. On top of that, firms should make sure ICT third-party service providers join the TLPT when their services are part of the testing scope.

Vulnerability Scanning Technical Parameters

DORA sets specific rules for vulnerability scanning too. Financial entities should create and use vulnerability management procedures that include:

• Weekly automated vulnerability scans on ICT assets that support critical functions
• Keeping track of third-party libraries, including open-source parts
• Ways to tell clients, counterparties, and the public about vulnerabilities
• Quick fixes and other measures based on priority

Financial entities should think about how critical the ICT assets are when fixing vulnerabilities. Their patch management should include emergency processes for updates and clear deadlines for installation.

Testing Documentation and Evidence Standards

Detailed documentation is key to DORA's testing framework. For TLPT, financial entities should provide:

• A summary of what they found after testing
• Detailed plans to fix any vulnerabilities they found
• Proof that TLPT follows all regulatory requirements

Authorities will review and provide an attestation to confirm the test met all requirements. This helps other authorities recognize the TLPT results. The attestation proves compliance during regulatory checks.

For vulnerability scanning, financial entities should record every vulnerability they find and track how it gets fixed. They should also document all patch management fully, including the automated tools they use to spot software and hardware patches.

These advanced testing requirements help DORA create a standard way to confirm security across European financial firms. This ensures reliable operational resilience against new digital threats.

ICT Third-Party Risk Technical Management

Chapter V of the EU DORA regulation sets technical requirements for managing ICT third-party risks. Financial entities must implement sophisticated control measures that go beyond regular vendor management practices.

Technical Due Diligence Requirements for Service Providers

Financial entities must assess ICT third-party service providers before signing any contracts. The pre-contractual phase requires verification of several key aspects. Service providers need to show:

• They have enough skills, expertise, and the right financial, human, and technical resources
• Their information security standards and organizational structure meet requirements
• They follow good risk management practices and internal controls

The assessment should show if providers use proven risk mitigation and business continuity measures. Companies can gather evidence through independent audits, third-party certifications, or internal audit reports from the ICT service provider.

API and Integration Security Standards

API security plays a crucial role in third-party risk management under DORA. Companies must find, assess risks, and secure every API that connects to enterprise data. They also need monitoring systems to check if API interactions stay secure throughout the relationship.

APIs often work as access points for vendors into core banking systems. DORA requires regular testing to find weaknesses in API endpoints. Organizations must find ways to detect shadow APIs - these hidden or forgotten endpoints could create security risks.

Exit Strategy Technical Requirements

Each contract with ICT service providers needs an exit strategy. These plans should be realistic and based on likely scenarios. The plans must cover:

• Unexpected service disruptions
• Cases where service delivery fails
• Sudden contract terminations

Teams should review and test exit plans regularly to make sure they work. The implementation schedules should match the exit and termination terms in contracts.

Subcontractor Chain Technical Oversight

DORA brings new rules for watching over subcontractors because many critical functions rely on complex supply chains. Financial companies must know every ICT subcontractor supporting critical functions. The financial entity still holds full responsibility for managing risks.

Contracts must clearly state if critical functions can be subcontracted. They should also specify when providers need to notify about major subcontracting changes. Financial entities can object to proposed changes that exceed their risk comfort level.

The regulation gives financial entities the right to end contracts if ICT providers make major subcontracting changes without approval or despite objections.

Incident Reporting Technical Infrastructure

DORA requires financial entities to set up advanced systems that detect, classify and report major ICT-related incidents. These requirements set new standards for operational resilience in EU's financial sector.

Real-time Monitoring System Requirements

Financial entities must deploy immediate monitoring capabilities to detect unusual activities quickly under DORA rules. They need systems to monitor, manage, log and classify ICT-related incidents. Organizations should collect and analyze data from different sources to ensure early detection. They must also assign specific roles and duties for their monitoring functions.

Each financial entity should create an ICT-related incident policy that covers every step of incident management. The policy needs clear triggers for detecting and responding to ICT-related incidents. The firms should keep incident evidence to help with later analysis, especially for incidents that could have serious effects or happen again.

Automated Classification System Specifications

Financial entities must use automated systems with clear thresholds to classify incidents under DORA. The rules define technical standards that determine which "major ICT-related incidents" must be reported. These classification systems should follow the criteria in Commission Delegated Regulation 2024/1772, which sets severity thresholds.

The automated systems should help maintain consistent classification across incident types. The European Supervisory Authorities have made reporting simpler by reducing the fields needed in the first notifications.

Secure Reporting Channel Technical Standards

Financial entities must create secure channels to report incidents under DORA. They should report within 4 hours after classification and 24 hours after detection. The rules require intermediate reports within 72 hours and final reports within a month.

Organizations need secure communication systems that work with standard reporting templates. The Reporting ITS provides specific templates and methods for secure channel reporting. Weekend reporting now focuses mainly on credit institutions, trading venues, central counterparties, and entities that could affect the whole system.

Conclusion

DORA represents a defining moment for the EU financial sector's digital resilience. Financial organizations must upgrade their technical setup, testing methods and management structure by January 2025. These changes will help them meet strict compliance rules.

The rules specify exact technical steps in different areas. Teams need to focus on network division, backup systems and advanced testing methods. Board members now have bigger roles. They must understand technical aspects to manage ICT risks properly.

Managing third-party relationships is vital under DORA. Financial firms must set up strong technical reviews, secure API connections and detailed exit plans for ICT providers. The technical rules also include immediate monitoring systems and automated ways to sort incidents. These systems help keep operations running smoothly.

Companies should start making these changes now to succeed with DORA. This early start lets financial firms adjust their systems, methods and paperwork to match DORA's detailed framework before enforcement begins.