Managing ICT third-party risks is critical for financial institutions, especially with the Digital Operational Resilience Act (DORA) taking effect in January 2025. Here’s a quick guide to the top five practices for ensuring compliance and operational resilience:
- Perform Detailed Risk Assessments: Evaluate third-party providers for operational, security, and business risks. Use tools like risk matrices and maintain a register of all providers.
- Set Clear Contracts: Define performance metrics, security controls, and accountability in agreements. Include provisions for subcontractor oversight and termination clauses.
- Continuous Monitoring: Track provider performance, security, and compliance in real time. Focus on critical providers and document all monitoring activities.
- Build a Risk Management Framework: Create a structured approach with risk assessments, control measures, contingency plans, and regular updates.
- Regular Audits and Testing: Conduct security audits, resilience tests, and compliance reviews. Document findings and ensure providers address issues promptly.
These steps not only help meet DORA requirements but also strengthen operational stability and reduce risks from third-party ICT providers. Tools like DORApp can simplify compliance and monitoring.
Third Party Risk Management (DORA)
1. Perform Detailed Risk Assessments
Managing ICT third-party risks effectively starts with thorough evaluations of operational, concentration, and systemic risks. With DORA coming into effect in January 2025, these assessments are essential for meeting compliance standards and maintaining operational stability.
Here’s where to focus:
-
Service Criticality Evaluation
Determine how vital third-party services are to your operations. Understand how disruptions could affect your business processes and customer experience. -
Provider Due Diligence
Carefully examine ICT providers by looking into:- Their risk management and resilience strategies
- Compliance with security standards
- Service reliability and performance history
- Financial health and stability
-
Impact Assessment
Evaluate both the immediate and long-term effects of potential service interruptions.
A streamlined approach, like using a risk assessment matrix, can simplify the process:
| Risk Category | Assessment Criteria | Documentation Required |
|---|---|---|
| Operational Risk | Service reliability, backup systems, incident response capabilities | Performance reports, SLA metrics |
| Security Risk | Data protection measures, cybersecurity controls, compliance certifications | Security audit reports, compliance certificates |
| Business Risk | Financial stability, market reputation, geographic location | Financial statements, reference checks |
It’s also crucial for financial institutions to maintain a detailed register of all ICT third-party providers and services. This should include:
- Contract details and service specifics
- Results of risk assessments
- Monitoring protocols
- Contingency plans
Consider using tools like DORApp to efficiently manage ICT third-party providers, keep detailed audit trails, and ensure compliance with DORA.
After assessing the risks, the next step is to translate these findings into clear, enforceable contracts with your third-party providers.
2. Set Clear Contractual Agreements
Once risks are assessed, having well-defined contracts is crucial for managing ICT third-party risks and meeting DORA requirements. With the January 2025 implementation deadline approaching, financial institutions need to ensure their agreements address key areas like operational resilience, regulatory compliance, and accountability.
Key Elements to Include in Contracts
| Contract Element | Required Provisions | Compliance Focus |
|---|---|---|
| Service Delivery | Performance metrics, availability targets, response times | Operational resilience |
| Risk Management | Security controls, incident reporting, business continuity | DORA requirements |
| Governance | Audit rights, reporting obligations, oversight mechanisms | Regulatory compliance |
| Exit Planning | Termination terms, data portability, transition support | Operational continuity |
Managing Subcontractors
Contracts should also address subcontractor management. This means including clauses for notifying your institution about new subcontractors, ensuring visibility into subcontracting arrangements, and setting clear accountability standards for performance and compliance. These measures align with DORA's emphasis on supply chain transparency.
Regular Monitoring and Reviews
Use specialized tools to keep track of contractual obligations and compliance requirements. Make it a point to review contracts at least once a year to ensure they stay in line with changing regulations.
"In the event that the Provider fails to comply with any regulatory or operational resilience requirements, the Financial Entity reserves the right to terminate this Agreement with immediate effect." [1]
Termination clauses like this are critical. They allow institutions to protect themselves if a provider falls short on regulatory or operational commitments. Tools designed for contract management can help maintain an organized register of ICT service agreements and ensure they meet DORA standards.
With contracts securely in place, the focus shifts to maintaining ongoing oversight of providers to uphold compliance and resilience.
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3. Maintain Continuous Monitoring and Oversight
To manage ICT third-party risks effectively, keeping a close, ongoing watch is essential. With DORA's implementation on the horizon, financial institutions need systems that provide real-time insights into how providers are performing and staying compliant.
Key Monitoring Components
| Component | Purpose | Monitoring Focus |
|---|---|---|
| Performance Tracking | Evaluate service delivery against SLAs | Uptime, response times, incident rates |
| Security Monitoring | Keep an eye on security and vulnerabilities | Threat detection, patch management, access controls |
| Compliance Verification | Confirm adherence to regulations | DORA requirements, security standards, certifications |
| Operational Resilience | Examine continuity and recovery readiness | Recovery time objectives, backup systems, failover testing |
Automated Monitoring Tools
Solutions like DORApp streamline the process by offering real-time dashboards, alerts, and audit trails. These tools make it easier to keep tabs on providers and ensure nothing slips through the cracks.
Risk-Based Monitoring
Focus your monitoring efforts based on how critical each provider is to your operations. Allocate resources according to the provider's risk level, as determined during initial assessments. This ensures you're covering the most important risks without spreading efforts too thin.
Keeping Records and Extending Oversight
Always document your monitoring activities. This includes SLA compliance, incident reports, regulatory checks, and any corrective actions taken. Don’t forget to monitor subcontractors as well - your contracts should clearly outline this responsibility to ensure compliance throughout the supply chain.
Ongoing monitoring is a core part of meeting DORA's requirements. It not only helps institutions stay compliant but also strengthens overall resilience by feeding into a larger risk management strategy.
4. Build a Strong Risk Management Framework
A solid risk management framework is essential for effective ICT third-party oversight. Financial institutions must adopt an approach that meets DORA requirements while ensuring resilience in operations.
Core Framework Components
| Component | Purpose | Key Activities |
|---|---|---|
| Risk Assessment | Evaluate provider criticality | Conduct due diligence, impact analysis, and risk scoring |
| Control Implementation | Put safeguards in place | Implement security measures, compliance checks, and performance standards |
| Contingency Planning | Maintain business continuity | Develop exit strategies, backup options, and recovery plans |
| Documentation | Ensure transparency | Keep contract registers, audit trails, and incident reports |
Alignment with Enterprise Risk Management
ICT third-party risk management should integrate smoothly with your organization's overall risk strategies to maintain consistent oversight across all areas of operation.
Measuring Success
Use these metrics to monitor how well your framework is performing:
- Frequency and severity of incidents
- Time taken to resolve risks
- Compliance with SLAs
- Achievement of recovery objectives
Using Technology for Efficiency
Tools like DORApp can help automate risk assessments, provide real-time monitoring, and ensure compliance with DORA reporting standards.
Implementing Framework Components
When implementing control measures, clearly define subcontractor oversight requirements and establish responsibility chains. This ensures uniform standards across your service delivery network.
Routine Framework Updates
Review your framework every quarter to refine risk criteria, improve processes, and stay compliant with regulations. Keep documentation updated for audits.
Once your framework is in place, focus on maintaining its effectiveness through regular audits and testing.
5. Carry Out Regular Audits and Tests
Regular audits and testing are essential for managing ICT third-party risks effectively. Financial institutions need to set up thorough assessment programs to maintain resilience and meet DORA requirements.
Under DORA, financial institutions must document and regularly evaluate ICT providers to ensure they meet resilience and compliance standards. This makes audits a key part of staying compliant. Activities like quarterly security audits, monthly vulnerability checks, bi-annual resilience tests, and annual compliance reviews help maintain strong oversight.
Testing and Performance Tracking
Simulated tests, such as stress tests for disruptions or cyberattacks, help assess how prepared providers are. Keep an eye on metrics like response times, identified compliance issues, and how quickly vulnerabilities are resolved to gauge effectiveness.
What to Document
When conducting audits, make sure to record:
- Test scenarios and their results
- Provider responses and remediation actions
- Evidence showing compliance with regulations
- Incident reports and how they were resolved
Using Technology for Audits
Automated tools can simplify the process, making it easier to meet DORA’s reporting standards while cutting down on manual work.
Holding Providers Accountable
Contracts should require providers to participate in audits and address issues promptly. Service agreements should include rights for unscheduled audits, access to necessary documentation, mandatory resilience testing, and clear timelines for resolving problems.
Conclusion
Managing ICT third-party risks has become a top priority for financial institutions, especially with DORA regulations set to take effect in January 2025. Staying ahead with effective risk management is crucial for ensuring resilience and meeting compliance standards in this shifting regulatory environment. By applying the strategies discussed, financial institutions can tackle the challenges of third-party ICT risk head-on.
Recent high-profile incidents underscore the pressing need for strong ICT risk management. The five practices outlined earlier offer a clear roadmap for addressing these challenges, helping institutions maintain operational stability and meet regulatory expectations.
Adopting these practices delivers several key benefits, such as:
- Strengthened operational stability through consistent risk management
- Better compliance with DORA requirements
- Improved management and oversight of third-party relationships
- Increased trust from stakeholders in the institution’s risk management approach
Additionally, tools like DORApp and Prevalent simplify third-party risk management by automating assessments and tracking compliance. These solutions enable financial institutions to maintain better control over their ICT providers.
The ability to manage ICT third-party risks effectively is critical for the future of financial services. By implementing these practices and leveraging the right technology, institutions can not only meet compliance standards but also gain a competitive edge in today’s interconnected financial landscape. This approach lays the groundwork for growth and innovation in an increasingly digital world.
