Digital Operational Resilience Act Articles (Proposal)

The Articles (Proposal) of the Digital Operational Resilience Act

Digital Operational Resilience Act (DORA), Preamble 21 to 30.

(21) ICT-related incident reporting thresholds and taxonomies vary significantly at national level. While common ground may be achieved through relevant work undertaken by the European Union Agency for Cybersecurity (ENISA) 33 and the NIS Cooperation Group for the financial entities under Directive (EU) 2016/1148, divergent approaches on thresholds and taxonomies still exist or can emerge for the remainder of financial entities. This entails multiple requirements that financial entities must abide to, especially when operating across several Union jurisdictions and when part of a financial group. Moreover, these divergences may hinder the creation of further Union uniform or centralised mechanisms speeding up the reporting process and supporting a quick and smooth exchange of information between competent authorities, which is crucial for addressing ICT risks in case of large scale attacks with potentially systemic consequences.

(22) To enable competent authorities to fulfil their supervisory roles by obtaining a complete overview of the nature, frequency, significance and impact of ICT-related incidents and to enhance the exchange of information between relevant public authorities, including law enforcement authorities and resolution authorities, it is necessary to lay down rules in order to complete the ICT-related incident reporting regime with the requirements that are currently missing in financial subsector legislation and remove any existing overlaps and duplications to alleviate costs. It is therefore essential to harmonise the ICT-related incident reporting regime by requiring all financial entities to report to their competent authorities only. In addition, the ESAs should be empowered to further specify ICT-related incident reporting elements such as taxonomy, timeframes, data sets, templates and applicable thresholds.

(23) Digital operational resilience testing requirements have developed in some financial subsectors within several and uncoordinated, national frameworks addressing the same issues in a different way. This leads to duplication of costs for cross-border financial entities and makes difficult the mutual recognition of results. Uncoordinated testing can therefore segment the single market.

(24) In addition, where no testing is required, vulnerabilities remain undetected putting the financial entity and ultimately the financial sector’s stability and integrity at higher risk. Without Union intervention, digital operational resilience testing would continue to be patchy and there would be no mutual recognition of testing results across different jurisdictions. Also, as it is unlikely that other financial subsectors would adopt such schemes on a meaningful scale, they would miss out on the potential benefits, such as revealing vulnerabilities and risks, testing defence capabilities and business continuity, and increased trust of customers, suppliers and business partners. To remedy such overlaps, divergences and gaps, it is necessary to lay down rules aiming at coordinated testing by financial entities and competent authorities, thus facilitating the mutual recognition of advanced testing for significant financial entities.

(25) Financial entities’ reliance on ICT services is partly driven by their need to adapt to an emerging competitive digital global economy, to boost their business efficiency and to meet consumer demand. The nature and extent of such reliance has been continuously evolving in the past years, driving cost reduction in financial intermediation, enabling business expansion and scalability in the deployment of financial activities while offering a wide range of ICT tools to manage complex internal processes.

(26) This extensive use of ICT services is evidenced by complex contractual arrangements, whereby financial entities often encounter difficulties in negotiating contractual terms that are tailored to the prudential standards or other regulatory requirements they are subject to, or otherwise in enforcing specific rights, such as access or audit rights, when the latter are enshrined in the agreements. Moreover, many such contracts do not provide for sufficient safeguards allowing for a fully-fledged monitoring of subcontracting processes, thus depriving the financial entity of its ability to assess these associated risks. In addition, as ICT third-party service providers often provide standardised services to different types of clients, such contracts may not always adequately cater for the individual or specific needs of the financial industry actors.

(27) Despite some general rules on outsourcing in some of the Union’s financial services pieces of legislation, the monitoring of the contractual dimension is not fully anchored into Union legislation. In the absence of clear and bespoke Union standards applying to the contractual arrangements concluded with ICT third-party service providers, the external source of ICT risk is not comprehensively addressed. Consequently, it is necessary to set out certain key principles to guide financial entities’ management of ICT third-party risk, accompanied by a set of core contractual rights in relation to several elements in the performance and termination of contracts with a view to enshrine certain minimum safeguards underpinning financial entities’ ability to effectively monitor all risk emerging at ICT third party level.

(28) There exists a lack of homogeneity and convergence on ICT third party risk and ICT third-party dependencies. Despite some efforts to tackle the specific area of outsourcing such as the 2017 recommendations on outsourcing to cloud service providers, 34 the issue of systemic risk which may be triggered by the financial sector’s exposure to a limited number of critical ICT third-party service providers is barely addressed in Union legislation. This lack at Union level is compounded by the absence of specific mandates and tools allowing national supervisors to acquire a good understanding of ICT third-party dependencies and adequately monitor risks arising from concentration of such ICT third-party dependencies.

(29) Taking into account the potential systemic risks entailed by the increased outsourcing practices and by the ICT third-party concentration, and mindful of the insufficiency of national mechanisms enabling financial superiors to quantify, qualify and redress the consequences of ICT risks occurring at critical ICT third-party service providers, it is necessary to establish an appropriate Union oversight framework allowing for a continuous monitoring of the activities of ICT third-party service providers that are critical providers to financial entities.

(30) With ICT threats becoming more complex and sophisticated, good detection and prevention measures depend to a great extent on regular threat and vulnerability intelligence sharing between financial entities. Information sharing contributes to increased awareness on cyber threats, which, in turn, enhances financial entities’ capacity to prevent threats from materialising into real incidents and enables financial entities to better contain the effects of ICT-related incidents and recover more efficiently. In the absence of guidance at Union level, several factors seem to have inhibited such intelligence sharing, notably uncertainty over the compatibility with the data protection, anti-trust and liability rules.