The Digital Operational Resilience Act (DORA) is reshaping the operational framework for financial institutions and ICT service providers across Europe. DORA aims to ensure that these entities can withstand, respond to, and recover from ICT-related disruptions and threats, making it essential for operational resilience. A key component of this resilience is ensuring robust contract compliance with both internal policies and external regulatory requirements.
In this post, we’ll explore what DORA means for your contracts and how compliance impacts your organization’s operational resilience, along with a practical DORA contract compliance checklist.
What is DORA and Why does it matter?
The Digital Operational Resilience Act (DORA) is an EU regulation that aims to harmonize and strengthen the digital operational resilience of the financial sector. It covers a wide range of topics, such as ICT risk management, incident reporting, testing, information sharing, and oversight of third-party providers. DORA is expected to be adopted by January 17, 2025, and will apply to a wide range of financial-services entities operating in the EU, as well as their ICT service providers, regardless of their location.
As financial institutions 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 third-party contracts.
Why Contract Compliance is Critical Under DORA
Contract compliance plays a vital role in ensuring that organizations meet DORA’s requirements. Under the regulation, financial institutions must have thorough oversight of their ICT service provider contracts, ensuring they contain necessary clauses related to, including but not limited to, risk management, security, and operational continuity.
For example, DORA outlines that contracts with third-party ICT providers must explicitly define the terms around incident reporting, data security, and service continuity. Non-compliance in contracts 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 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 contracts with ICT providers should contain clauses that explicitly address DORA’s requirements, such as resilience testing, incident response procedures, and risk management protocols. Ensure your contracts detail how ICT providers will comply with DORA, including timelines for resolving incidents and reporting requirements.
2. Monitor Third-Party Compliance
Financial institutions should continuously monitor their third-party vendors 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 your contracts. 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 Protection and Security Requirements
Ensure that your contracts with ICT providers include clauses on data protection 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. Regular Contract Audits and Reviews
It’s not enough to have compliant contracts in place—regular audits should be conducted to assess if your third-party providers are adhering to their contractual obligations. These audits should be part of a continuous monitoring strategy that aligns with DORA’s risk management requirements.
Key Takeaways: Strengthening Contract Compliance for DORA
Ensuring contract compliance under DORA is vital for operational resilience. Financial institutions must implement robust contract management processes that address risk management, incident response, and third-party monitoring to ensure alignment with DORA’s regulatory standards.
Immediate Steps for Contract Compliance
- Perform a contract review to ensure your existing agreements meet DORA’s requirements.
- Develop a contract management framework that includes monitoring and auditing of third-party agreements.
- Engage with your legal and procurement teams to ensure new contracts are DORA-compliant from the outset.
- Leverage technology to automate contract monitoring and auditing processes, helping you stay ahead of potential compliance risks.
Ready to Deepen Your Understanding of DORA Compliance? Join us for an insightful session with ContractPodAi and PwC as we break down the essentials of contractual compliance under the Digital Operational Resilience Act (DORA). 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 proposed 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 institutions and their ICT providers meet the regulation’s risk management and incident response requirements.
How can third-party contracts meet DORA requirements?
Third-party contracts should include clauses that address incident reporting, security, and resilience measures in alignment with DORA’s regulations. It is also essential to perform regular reviews and audits of these contracts 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 institutions must ensure their third-party contracts are DORA-compliant to avoid these consequences.
What steps should organizations take to ensure contract compliance?
Organizations should review existing contracts, establish a contract management framework, engage relevant stakeholders, and leverage technology to automate contract monitoring and auditing processes.
