Preamble 71 to 80, Digital Operational Resilience Act (DORA)
(71) Irrespective of the criticality or importance of the function supported by the ICT services, contractual arrangements should, in particular, provide for a specification of the complete descriptions of functions and services, of the locations where such functions are provided and where data is to be processed, as well as an indication of service level descriptions.
Other essential elements to enable a financial entity’s monitoring of ICT third party risk are: contractual provisions specifying how the accessibility, availability, integrity, security and protection of personal data are ensured by the ICT third-party service provider, provisions laying down the relevant guarantees for enabling the access, recovery and return of data in the case of insolvency, resolution or discontinuation of the business operations of the ICT third-party service provider, as well as provisions requiring the ICT third-party service provider to provide assistance in case of ICT incidents in connection with the services provided, at no additional cost or at a cost determined ex-ante; provisions on the obligation of the ICT third-party service provider to fully cooperate with the competent authorities and resolution authorities of the financial entity; and provisions on termination rights and related minimum notice periods for the termination of the contractual arrangements, in accordance with the expectations of competent authorities and resolution authorities.
(72) In addition to such contractual provisions, and with a view to ensuring that financial entities remain in full control of all developments occurring at third-party level which may impair their ICT security, the contracts for the provision of ICT services supporting critical or important functions should also provide for the following: the specification of the full service level descriptions, with precise quantitative and qualitative performance targets, to enable without undue delay appropriate corrective actions when the agreed service levels are not met; the relevant notice periods and reporting obligations of the ICT third-party service provider in the event of developments with a potential material impact on the ICT third-party service provider’s ability to effectively provide their respective ICT services; a requirement upon the ICT third-party service provider to implement and test business contingency plans and have ICT security measures, tools and policies allowing for the secure provision of services, and to participate and fully cooperate in the TLPT carried out by the financial entity.
(73) Contracts for the provision of ICT services supporting critical or important functions should also contain provisions enabling the rights of access, inspection and audit by the financial entity, or an appointed third party, and the right to take copies as crucial instruments in the financial entities’ ongoing monitoring of the ICT third-party service provider’s performance, coupled with the service provider’s full cooperation during inspections. Similarly, the competent authority of the financial entity should have the right, based on notices, to inspect and audit the ICT third-party service provider, subject to the protection of confidential information.
(74) Such contractual arrangements should also provide for dedicated exit strategies to enable, in particular, mandatory transition periods during which ICT third-party service providers should continue providing the relevant services with a view to reducing the risk of disruptions at the level of the financial entity, or to allow the latter effectively to switch to the use of other ICT third-party service providers or, alternatively, to change to in-house solutions, consistent with the complexity of the provided ICT service.
Moreover, financial entities within the scope of Directive 2014/59/EU should ensure that the relevant contracts for ICT services are robust and fully enforceable in the event of resolution of those financial entities. Therefore, in line with the expectations of the resolution authorities, those financial entities should ensure that the relevant contracts for ICT services are resolution resilient. As long as they continue meeting their payment obligations, those financial entities should ensure, among other requirements, that the relevant contracts for ICT services contain clauses for non-termination, non-suspension and non-modification on grounds of restructuring or resolution.
(75) Moreover, the voluntary use of standard contractual clauses developed by public authorities or Union institutions, in particular the use of contractual clauses developed by the Commission for cloud computing services could provide further comfort to the financial entities and ICT third-party service providers, by enhancing their level of legal certainty regarding the use of cloud computing services in the financial sector, in full alignment with the requirements and expectations set out by the Union financial services law. The development of standard contractual clauses builds on measures already envisaged in the 2018 Fintech Action Plan that announced the Commission’s intention to encourage and facilitate the development of standard contractual clauses for the use of cloud computing services outsourcing by financial entities, drawing on cross-sectorial cloud computing services stakeholders’ efforts, which the Commission has facilitated with the help of the financial sector’s involvement.
(76) With a view to promoting convergence and efficiency in relation to supervisory approaches when addressing ICT third-party risk in the financial sector, as well as to strengthening the digital operational resilience of financial entities which rely on critical ICT third-party service providers for the provision of ICT services that support the supply of financial services, and thereby to contributing to the preservation of the Union’s financial system stability and the integrity of the internal market for financial services, critical ICT third-party service providers should be subject to a Union Oversight Framework.
While the set-up of the Oversight Framework is justified by the added value of taking action at Union level and by virtue of the inherent role and specificities of the use of ICT services in the provision of financial services, it should be recalled, at the same time, that this solution appears suitable only in the context of this Regulation specifically dealing with digital operational resilience in the financial sector. However, such Oversight Framework should not be regarded as a new model for Union supervision in other areas of financial services and activities.
(77) The Oversight Framework should apply only to critical ICT third-party service providers. There should therefore be a designation mechanism to take into account the dimension and nature of the financial sector’s reliance on such ICT third-party service providers. That mechanism should involve a set of quantitative and qualitative criteria to set the criticality parameters as a basis for inclusion in the Oversight Framework.
In order to ensure the accuracy of that assessment, and regardless of the corporate structure of the ICT third-party service provider, such criteria should, in the case of a ICT third-party service provider that is part of a wider group, take into consideration the entire ICT third-party service provider’s group structure. On the one hand, critical ICT third-party service providers, which are not automatically designated by virtue of the application of those criteria, should have the possibility to opt in to the Oversight Framework on a voluntary basis, on the other hand, ICT third-party service providers, that are already subject to oversight mechanism frameworks supporting the fulfilment of the tasks of the European System of Central Banks as referred to in Article 127(2) TFEU, should be exempted.
(78) Similarly, financial entities providing ICT services to other financial entities, while belonging to the category of ICT third-party service providers under this Regulation, should also be exempted from the Oversight Framework since they are already subject to supervisory mechanisms established by the relevant Union financial services law. Where applicable, competent authorities should take into account, in the context of their supervisory activities, the ICT risk posed to financial entities by financial entities providing ICT services.
Likewise, due to the existing risk monitoring mechanisms at group level, the same exemption should be introduced for ICT third-party service providers delivering services predominantly to the entities of their own group. ICT third-party service providers providing ICT services solely in one Member State to financial entities that are active only in that Member State should also be exempted from the designation mechanism because of their limited activities and lack of cross-border impact.
(79) The digital transformation experienced in financial services has brought about an unprecedented level of use of, and reliance upon, ICT services. Since it has become inconceivable to provide financial services without the use of cloud computing services, software solutions and data-related services, the Union financial ecosystem has become intrinsically co-dependent on certain ICT services provided by ICT service suppliers.
Some of those suppliers, innovators in developing and applying ICT-based technologies, play a significant role in the delivery of financial services, or have become integrated into the financial services value chain. They have thus become critical to the stability and integrity of the Union financial system. This widespread reliance on services supplied by critical ICT third-party service providers, combined with the interdependence of the information systems of various market operators, create a direct, and potentially severe, risk to the Union financial services system and to the continuity of delivery of financial services if critical ICT third-party service providers were to be affected by operational disruptions or major cyber incidents.
Cyber incidents have a distinctive ability to multiply and propagate throughout the financial system at a considerably faster pace than other types of risk monitored in the financial sector and can extend across sectors and beyond geographical borders. They have the potential to evolve into a systemic crisis, where trust in the financial system has been eroded due to the disruption of functions supporting the real economy, or to substantial financial losses, reaching a level which the financial system is unable to withstand, or which requires the deployment of heavy shock absorption measures.
To prevent these scenarios from taking place and thereby endangering the financial stability and integrity of the Union, it is essential to provide the convergence of supervisory practices relating to ICT third-party risk in finance, in particular through new rules enabling the Union oversight of critical ICT third-party service providers.
(80) The Oversight Framework largely depends on the degree of collaboration between the Lead Overseer and the critical ICT third-party service provider delivering to financial entities services affecting the supply of financial services. Successful oversight is predicated, inter alia, upon the ability of the Lead Overseer to effectively conduct monitoring missions and inspections to assess the rules, controls and processes used by the critical ICT third-party service providers, as well as to assess the potential cumulative impact of their activities on financial stability and the integrity of the financial system.
At the same time, it is crucial that critical ICT third-party service providers follow the Lead Overseer’s recommendations and address its concerns. Since a lack of cooperation by a critical ICT third-party service provider providing services that affect the supply of financial services, such as the refusal to grant access to its premises or to submit information, would ultimately deprive the Lead Overseer of its essential tools in appraising ICT third-party risk, and could adversely impact the financial stability and the integrity of the financial system, it is necessary to also provide for a commensurate sanctioning regime.
Note: This is the final text of the Digital Operational Resilience Act (DORA) - Regulation (EU) 2022/2554 of the European Parliament and of the Council of 14 December 2022 on digital operational resilience for the financial sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/2014, (EU) No 909/2014 and (EU) 2016/1011 (Text with EEA relevance).
Articles, Digital Operational Resilience Act (DORA):