Introduction to DORA and its Implications
As of Jan.17, 2025, the European Union’s Digital Operational Resilience Act (DORA) became enforceable. This new regulatory framework significantly impacts financial institutions and certain critical Information and Communications Technology (ICT) service providers. It aims to strengthen digital operational resilience across the financial sector through a fundamental shift from reactive to more proactive prevention, ensuring that entities can anticipate, withstand, and recover from digital disruptions, particularly those caused by cyber threats.
DORA applies to approximately 22,000 financial entities, including central securities depositories, credit institutions, insurance firms, crypto-asset service providers, investment firms, and various other financial market participants. Its focus extends beyond internal operations to the critical role that third-party vendors–including service providers– play in maintaining operational continuity and resilience.
Given the increasing reliance on external vendors—many of which handle sensitive data or integrate deeply into client environments—the risk of disruption is often heightened through third-party relationships. DORA seeks to address these risks, with particular emphasis on vendors whose services involve accessing a client’s digital environment or handling confidential client data.
Navigating DORA Compliance: Vendor Due Diligence Simplified
Corporate legal departments and law firms have recognized that DORA compliance requires a significant shift in how vendor relationships are managed. Compliance is no longer solely confined to internal controls; it also extends those controls to every third-party partner with access to sensitive systems or data. For legal teams, meeting DORA’s obligations means ensuring that vendors not only meet stringent security and operational resilience requirements but also that they can provide the necessary evidence to support due diligence of these requirements, which is critical for minimizing risks and avoiding penalties.
Given the evolving regulatory landscape, organizations are making considerable investments to align their operations and vendor management strategies with DORA’s requirements. For example, vendor selection criteria can be taken into account if a proposed vendor has earned the Financial Services Qualifications System (FSQS) registration certification, a rigorous, comprehensive vendor assessment process developed and accepted by many of the largest financial institutions in Europe. Many organizations are also focused on strengthening their vendor onboarding processes to ensure they can quickly respond to compliance assessments and meet the stringent criteria set by DORA.
Vendor Assessments and Compliance Efficiencies
Vendor assessments are often a challenge for legal teams, particularly when managing large numbers of complex client relationships. To help ease this process, many service providers have invested in making the vendor onboarding experience as smooth as possible, taking a client-centric approach that considers the unique regulatory and operational requirements of each organization. Whether at the RFP, procurement onboarding, or annual assessment stage, firms have increasingly focused on responding to compliance requests with the documentation required to meet various DORA requirements.
Large organization’s legal departments face tight deadlines, whether driven by regulatory timelines or business needs. Vendors that employ cross-functional teams within their organization can address the complexity of DORA-related assessments, often responding to detailed compliance questionnaires within 3-5 business days. This agility allows legal departments to focus on the bigger picture – how their vendors can drive positive business outcomes- while knowing that their vendors are meeting the rigorous compliance standards required under DORA.
In summary, DORA significantly impacts digital supply chain resilience obligations by requiring organizations to strengthen the governance and monitoring of third-party relationships, ensuring that vendors meet the highest standards of operational resilience, and addressing the risks posed by vendor disruptions in a more systematic and comprehensive way. Legal departments, compliance officers, and IT teams must work closely together to ensure that the entire digital supply chain is resilient and complies with DORA, with an emphasis on risk assessments, contractual safeguards, and continuous monitoring of critical third-party vendors.