Empowering Resilience Through Risk Management: The Path to DORA Compliance in the Financial Sector

Third-party providers—whether cloud service providers, data centers, or even credit rating agencies—are essential to financial institutions’ day-to-day operations. As the industry continues to embrace digital transformation, the reliance on external suppliers grows. However, with this increased reliance comes increased risk and potential vulnerabilities. A disruption or breach from a third-party provider can have far-reaching consequences, impacting everything from customer trust to regulatory penalties. 

DORA recognizes this risk, establishing strict guidelines on how firms must monitor and manage their third-party relationships maintain high standards of operational resilience and reduce the risk of disruptions. The new regulation requires financial institutions to:

1. Identify Critical Third Parties: Financial institutions must assess their external service providers and categorize them based on their importance to business continuity. This includes not just core services like IT infrastructure but also suppliers involved in regulatory reporting, data management, and cybersecurity. 

2. Ensure Resilience of Third Parties: DORA mandates that financial entities must conduct thorough due diligence and establish contractual obligations with third-party providers to ensure that their suppliers meet operational resilience requirements. This includes requiring them to have robust cybersecurity measures, disaster recovery plans, and data protection protocols in place. 

3. Continuous Monitoring and Risk Assessment: It’s no longer enough to simply vet third parties during the initial contracting and onboarding process. Under DORA, ongoing monitoring is essential to ensure compliance with contractual requirements and manage risks appropriately. Financial institutions must continuously evaluate the risk posture of their third-party providers, ensuring that they remain compliant with security, operational, and regulatory standards throughout the partnership. 

4. Incident Reporting, Contingency Planning and Testing: DORA also demands that institutions have clear, actionable contingency plans in place in case of a third-party breach or disruption caused by third party service provider incidents. These plans must be regularly tested to ensure their effectiveness in maintaining operational continuity, and include provisions for quickly identifying and reporting incidents, as well as measures for minimizing the impact of any disruptions. 

Managing third-party risk is not a new challenge for financial institutions, but the scope of DORA’s requirements presents a unique opportunity—and challenge—for organizations. Ensuring compliance will require significant effort and coordination across multiple departments and functions. More importantly, it will demand comprehensive digital tools that can support continuous third-party monitoring, facilitate efficient onboarding processes, and track compliance across a range of standards. 

Here, digital platforms like Trust Your Supplier (TYS) can be a game-changer. TYS enables organizations to streamline the discovery, onboarding, and compliance management of third-party suppliers, all while ensuring that supplier risk is continuously assessed through automated workflows.  

By leveraging TYS’s third-party risk management capabilities, financial institutions can gain visibility into the operational resilience of their critical suppliers, monitor ongoing compliance with DORA’s stringent requirements, and quickly identify any potential gaps in their third-party risk management strategies. 

To successfully prepare for DORA’s third-party risk management requirements, financial institutions should: 

1. Conduct a Third-Party Risk Assessment: Review all third-party relationships and identify which suppliers are critical to business continuity. This should include both direct suppliers and those providing outsourced services for your critical functions. 

2. Strengthen Contracts and Agreements: Ensure that all contracts with third-party providers include provisions for operational resilience, including disaster recovery, cybersecurity, and compliance monitoring. 

3. Implement Continuous Monitoring and Reporting: Implement digital tools that enable real-time monitoring of third-party risk. This should include tracking supplier financial health, cybersecurity posture, and any relevant regulatory compliance requirements. 

4. Establish Incident Response and Contingency Plans: Develop and implement contingency plans that include clear protocols for handling disruptions caused by third-party service providers. 

Trust Your Supplier (TYS) offers a comprehensive solution for managing third-party risk under DORA. The platform enables financial institutions to streamline the discovery and vetting of suppliers, while also maintaining a continuous watch on supplier compliance and risk.  

With TYS, you can: 

• Pre-qualify and Assess Third-Party Suppliers: Discover new, trusted suppliers with integrated risk data and pre-qualification tools. TYS makes it easier to evaluate and select suppliers that meet your organization’s specific resilience and compliance needs.
  
• Continuous Monitoring: Stay informed about your suppliers’ financial viability, cybersecurity posture, and overall risk through automated updates and reports. TYS helps you ensure that your critical third-party providers continue to meet DORA’s evolving requirements. You can conduct regular audits and questionnaires as part of an ongoing monitoring campaign to ensure they remain compliant with DORA.

• Streamline Compliance Management: TYS’s digital workflows automate the monitoring of regulatory compliance, reducing manual effort, mitigate human error and maintain an audit trail of documentation and approvals to achieve compliance.   

As DORA compliance looms large on the horizon, financial institutions have a critical opportunity to enhance their third-party risk management strategies. By addressing the risks posed by external suppliers, financial entities can build a more resilient, digitally enabled operational model that stands up to the challenges ahead. 

Taking action now—not just to comply with DORA, but to build a sustainable third-party risk management framework—will ensure that financial institutions can not only survive but thrive in an increasingly complex and regulated environment.