Understanding the stakes: a guide to Digital Operational Resilience Act’s penalties

the stakes:
a guide to
DORA's penalties

a guide to DORA's penalties

Strategic insights into DORA’s penalties: preparing for a resilient tomorrow.

The Digital Operational Resilience Act (DORA) is vital for the financial sector stability in the European Union. DORA strengthens the industry’s defenses against cyber threats and ensures a cohesive response to financial data breaches among EU member states.

The regulation brings a new era of accountability. It shifts from reactive to proactive risk management. Yet, being mandatory for application, non-compliance comes at a hefty price.

In this piece, we explore such a price. It includes financial penalties, administrative repercussions, and even criminal consequences. Understanding these is crucial for avoiding potential issues after DORA comes into action in 2025.

Five pillars DORA stands upon

The digital landscape changes. Threats become more complex. DORA is timely and imperative. DORA’s five pillars form a solid basis for cyber resilience in the European financial sector.

I. ICT risk management

DORA will greatly influence the ICT risk management standard. This standard mandates European financial institutions to assess, mitigate, and manage risks linked to their ICT systems. DORA reinvents the EU’s financial organizations’ protection and rehabilitation pattern against digital threats.

II. Incident reporting

DORA requires transparency about data security incidents for partners, employees, and clients. Incident reporting is crucial for financial institutions under DORA. They must have robust systems to detect, report, and analyze ICT incidents. This framework ensures incidents are managed well to prevent future issues.

III. Digital operational resilience testing

The European Commission will conduct more ad hoc testing to create a cybercrime-proof data environment. Digital operational resilience testing, mandated by DORA, is crucial. It ensures financial institutions’ systems can withstand cyber threats.

IV. Third-party risk management

More accountability and responsibility for your third-party vendors is coming. Third-party ICT risk management is integral to the DORA framework, focusing on financial institutions’ relationships with external ICT service providers. This DORA element ensures third-party engagements don’t compromise the financial institution’s operational resilience.

V. Information sharing

Your organization must be ready to share more information and do it securely. Information sharing in the financial sector focuses on cybersecurity collaboration, as outlined in the DORA. This pillar fosters a community-driven approach by encouraging financial entities to share cyber threat information. This helps manage risks and build resilience.

The aforementioned pillars emphasize the EU’s commitment to protect its financial ecosystem with improved digital operational resilience. Financial entities adopting DORA will strengthen defenses. This leads to a more secure financial infrastructure in Europe.

Avenga’s unified guide to Digital Operational Resilience Act

This whitepaper holds everything you need to know about DORA, conveniently compiled in one place by Avenga's experts. While some companies are almost there with their Digital Operational Resilience Act compliance, some have only started their journey, and some are yet to hear about it, there is always something to learn and double-check regarding data in the financial sector. Learn or verify your knowledge about the main novelties in data handling and ICT third-party risk management the European Parliament will require within its financial system. Dive deep into the best strategies for DORA readiness. One whitepaper, everything there is to know about a DORA-ready future of your business.

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Ins and outs of non-compliance penalties

DORA enforces a strict penalty regime to ensure digital operational resilience in financial regulations. Non-compliance has severe repercussions, reflecting the Regulation’s strict position on cyber resilience.

Financial penalties: the cost of non-compliance

DORA establishes rigorous financial penalties for violations of its requirements. A breach could see institutions fined up to 2% of their total annual worldwide turnover or up to 1% of the company’s average daily turnover worldwide. Individuals and companies could face fines of up to €1.000.000. Critical third-party ICT service providers, integral to financial entities, could incur even higher fines—up to €5.000.000 or €500.000 for individuals if they fail to meet DORA’s stringent standards.

For comparison, financial penalties associated with non-compliance with the General Data Protection Regulation (GDPR) can reach €20.000.000 in most severe cases or 4% of the total global turnover. One can anticipate that a company failing to comply with DORA and GDPR will face almost certain financial peril.

Authority to impose penalties

European Supervisory Authorities (ESAs) are responsible for imposing penalties. They are empowered by DORA to uphold digital operational resilience in finance. As stipulated in Article 97, competent authorities have the necessary supervisory and investigatory powers and the ability to publish notices of administrative penalties, ensuring transparency and accountability.

Designated entities and timeframe

These penalties and the framework that dictates them were published in the Official Journal of the European Union on December 27, 2022, under Regulation (EU) 2022/2554. The regulatory requirements become enforceable from January 17, 2025, allowing institutions to align their operations with DORA’s mandates. ESAs will develop and adopt technical standards that specify compliance requirements during this period.

Operational readiness and business presence

Critical ICT third-party service providers established outside the EU must ensure an adequate business presence within the Union to facilitate oversight and ensure that penalties can be effectively imposed and enforced. This provision, detailed in paragraph 81, requires designated critical service providers to establish a subsidiary in the EU within 12 months of their designation.

Hybrid funding for oversight tasks

The ESAs may incur costs before the start of the Oversight Framework, for which a hybrid funding model is proposed in paragraph 96. Contributions from the Union and national competent authorities will fund the development of dedicated ICT systems supporting oversight.

Exercise of powers: factors influencing penalties

Article 51 outlines how competent authorities should exercise their power to impose administrative penalties and remedial measures. These include:

  • The nature of the breach — what rules or regulations were violated;
  • The gravity of the breach — the seriousness and impact of the non-compliance;
  • The duration of the breach — how long the non-compliance continued;
  • The degree of responsibility of the offending party — their role and influence over the circumstances leading to the breach;
  • The financial strength of the responsible party — their economic capacity to endure fines;
  • The importance of gains or losses avoided — whether the breach led to an unfair financial advantage or prevented a loss;
  • The level of cooperation with the supervisory authority — the offending party’s efforts to collaborate during the investigation and remedy the situation.

Understanding these factors is crucial for financial institutions as they navigate the requirements and implications of DORA’s penalty framework.

Criminal penalties and member state discretion

Member States can impose criminal penalties for breaches of DORA, as per Article 52. States must ensure measures are in place to enable liaising with judicial, prosecuting, or criminal justice authorities to implement these penalties effectively.

DORA’s penalty structure fortifies the financial sector against cyber threats. By integrating penalties with preventive measures and reporting obligations, experts behind DORA ensure a resilient economic ecosystem and maintain its participants’ integrity and trust. Without a doubt, this makes DORA readiness even more critical.

Is your organization DORA-ready?

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The upcoming arrival of DORA signals a shift in the financial sector’s move toward digital resilience. The EU challenges financial entities to improve cybersecurity and stabilize finance.

Act now as DORA’s application deadline approaches. The industry must adapt to digital resilience.

Contact our DORA compliance experts. Make sure your company is ready to adopt the regulation before 2025.

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