The Digital Operational Resilience Act (DORA) is reshaping the operational resilience framework for financial entities and ICT service providers across the EU. DORA aims to ensure that these organisations can withstand, respond to, and recover from ICT-related disruptions and threats. A key component of this objective is to incorporate certain operational resilience requirements into the ICT procurement contracts of financial entities.
In this post, we’ll explore what DORA means for the ICT procurement contracts of financial entities and why Contract compliance is critical under DORA, along with some tips on DORA contract compliance best practices.
What is DORA and Why does it matter?
DORA covers a wide range of topics, such as ICT risk management, incident reporting, testing, information sharing, and oversight of critical ICT service providers. DORA requires to be complied with by January 17, 2025, and will apply to a wide range of financial entities operating in the EU as well as their ICT service providers.
As financial entities increasingly depend on ICT systems, DORA mandates that these entities and their ICT service providers implement measures to manage ICT risks effectively, including those related to the ICT procurement contracts of financial entities.
Why Contract Compliance is Critical Under DORA
Contract compliance plays a vital role in ensuring that organizations meet DORA requirements. Under the regulation, financial entities must review and remediate their ICT procurement contracts, ensuring they contain necessary clauses, including but not limited to, risk management, security, and operational continuity.
For example, DORA outlines that the contracts with ICT providers must explicitly set out terms around incident reporting, data security, and service levels. Non-compliance with DORA contractual requirements can result in fines, reputational harm, and operational disruptions, making contract management a crucial aspect of DORA compliance.
Best Practices for Contract Compliance Under DORA
When working to meet DORA contractual requirements, it’s helpful to keep a few key best practices in mind to tackle the specific contract compliance needs it brings. Here are some of the most important strategies, though it’s by no means a complete list:
1. Establish Clear Contractual Obligations with Third Parties
All ICT procurement contracts of financial entities must contain relevant clauses that explicitly address DORA’s requirements, which may include resilience testing, incident response procedures, and risk management protocols. Ensure that these contracts detail how ICT providers will comply with DORA, including timelines for resolving incidents and reporting requirements.
2. Monitor Third-Party Compliance
Financial entities must continuously monitor their ICT service providers to ensure that they adhere to contractual terms related to DORA compliance. This can involve regular audits, reviews, and risk assessments. Use automated tools to streamline the process of monitoring these contracts and track any potential breaches of compliance.
3. Incident Management and Reporting Clauses
Under DORA, it’s critical to have clear procedures for incident management embedded in the ICT procurement contracts of financial entities. This includes defining how incidents will be reported, the timeframe for reporting, and the specific actions that will be taken to mitigate risk.
4. Data Security Requirements
All ICT procurement contracts of financial entities must include clauses on data availability, confidentiality and security that meet DORA standards. This includes defining who is responsible for safeguarding data, how data breaches will be handled, and the security protocols in place to prevent ICT disruptions.
5. Focus on ICT Contracts for Critical or Important Functions
As DORA places additional contractual requirements on those ICT procurement contracts which support Critical or Important Functions, financial entities must define those functions and identify those contracts, in order to enable remediation to take place as soon as possible.
Key Takeaways: Strengthening Contract Compliance for DORA
Ensuring contract compliance under DORA is vital for operational resilience. Financial entities must implement robust contract management processes that address risk management, incident response, and monitoring of ICT service providers to ensure alignment with DORA’s regulatory standards.
Immediate Steps for the financial entities for DORA contract compliance:
- Perform a ICT contract review to ensure your existing agreements meet DORA’s requirements.
- Develop a contract management framework that includes monitoring and auditing of ICT service providers.
- Engage with your legal and procurement teams to ensure new ICT contracts are DORA-compliant from the outset.
- Leverage technology to accelerate and streamline contract monitoring and auditing processes, helping you stay ahead of potential compliance risks.
Ready to deepen your understanding of DORA contractual compliance? Join us for an insightful session with ContractPodAi and PwC as we break down the essentials of contractual compliance under tDORA. Choose from two sessions on November 21 or November 26, 2024, where our experts will guide you through the latest requirements, practical steps, and a live demo of Leah, our GenAI contract assistant designed to streamline compliance.
Register today to secure your spot!
FAQs
What is DORA, and why is contract compliance important?
DORA is a EU regulation aimed at ensuring the operational resilience of the financial sector in the face of ICT risks. Contract compliance is crucial because it ensures that financial entities and their ICT providers meet the regulation’s risk management and incident response requirements.
How can ICT procurement contracts of financial entities meet DORA requirements?
ICT procurement contracts of financial entities must include certain mandatory clauses set out in DORA including that address incident reporting, security, and resilience measures in alignment with DORA. It is also essential to perform regular reviews and audits of these contracts and ICT service providers to ensure continuous compliance.
What are the penalties for contract non-compliance under DORA?
Penalties for non-compliance include fines, reputational damage, and operational risks. Financial entities must ensure their ICT procurement contracts are DORA-compliant to avoid these consequences.
What steps should organizations take to ensure DORA contract compliance?
Organizations should review existing ICT contracts, establish a contract management framework, engage relevant stakeholders, and leverage technology to accelerate and streamline contract monitoring and auditing processes.
