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Navigating EU Regulations: How Financial Institutions Can Use AI for DORA Compliance
In an era of digital acceleration, the financial sector faces growing pressure to ensure resilience and data security amid rising cyber risks. Over two decades, cyber incidents have cost the sector $12 billion, with $2.5 billion reported since 2020.
Gaetano Petescia
11/6/2024
In an era of digital acceleration, the financial sector faces growing pressure to ensure resilience and data security amid rising cyber risks. Over two decades, cyber incidents have cost the sector $12 billion, with $2.5 billion reported since 2020.
To confront these growing threats, regulators have responded by strengthening compliance requirements, especially within the EU. The introduction of the Digital Operational Resilience Act (DORA) and other frameworks has raised the stakes for financial institutions. In this context, artificial intelligence (AI) emerges as a critical ally, offering institutions tools to navigate the intricate regulatory terrain and maintaining resilience.
In this post, we’ll explore what DORA entails, how it’s reshaping the industry, and the innovative ways AI can empower financial institutions to stay compliant and secure.
The Digital Operational Resilience Act: The impact on the Financial Industry
A recent survey shows that most institutions are allocating between €5 million and €15 million to support their DORA compliance strategies, highlighting the high stakes of operational resilience.
Key Components of DORA
The latest DORA guidelines outline a framework for financial institutions that emphasizes Information and Communication Technology (ICT) risk management, proactive security measures, and effective incident response. Here’s an overview of its key components
ICT Risk Management Framework: Institutions must establish a clear ICT risk management policy, governing ICT assets with structured oversight and predefined risk tolerance levels.
ICT Security Policies: Secure networks, robust access controls, and regular vulnerability patching are essential to prevent unauthorized access and protect against cyber threats and ensure constant availability.
Incident Detection and Recovery: Institutions must create and test mechanisms for early incident detection and establish business continuity plans that include contingencies for third-party failures.
Testing and Monitoring: Regular testing of continuity plans and ongoing monitoring of ICT systems are mandated to preempt and mitigate risks.
Tailored Requirements for Smaller Entities: Smaller institutions have slightly simplified requirements but must still implement core ICT controls and continuity measures.
Reporting and Review: Financial institutions are required to periodically review their ICT risk frameworks and submit standardized reports when necessary.
The Industry’s DORA Challenges
Although DORA was introduced in early 2023, the final Regulatory Technical Standards (RTS) were only released in mid-2024. With the enforcement date of January 17, 2025, fast approaching, only about a third of institutions feel confident they’ll meet all requirements on time.
Third-party risk management stands out as a particularly challenging area. Institutions need to carefully monitor ICT providers, mitigate digital risks, and ensure that these third-party vendors meet DORA’s requirements—a process that involves frequent contract reviews, regular assessments, and ensuring vendors meet strict guidelines.
Finally, InfoSec and Compliance departments are already strained by an overload of existing requirements, making it difficult to allocate resources toward implementing and adapting to new standards like DORA.
Easing Compliance Through AI
As DORA’s compliance deadline approaches, artificial intelligence offers a way to support and improve how companies manage their regulatory processes. By automating certain tasks, AI can help manage complex documentation, perform constant monitoring, and improve response times, taking some of the burden off compliance teams.
Automated Compliance Monitoring
AI-driven systems continuously monitor ICT environments for potential vulnerabilities, ensuring that security protocols are always current. Real-time monitoring not only enables rapid threat identification but also reduces the risk of DORA non-compliance.
Document Management and Analysis
Managing the extensive documentation required for compliance is one of the most time-consuming tasks for financial institutions. AI-powered tools like Kern AI’s Cognition can automate these processes, allowing institutions to quickly compare contracts, extract key insights, and verify that all compliance requirements are met. Cognition analyzes contracts and policies for compliance terms, flagging gaps or inconsistencies that might otherwise be overlooked, improving both speed and accuracy.
Proactive Threat Detection and Response
AI can also enhance how institutions detect and respond to ICT incidents. With automated threat detection, AI systems can identify suspicious activities and address risks before they escalate. This keeps financial institutions aligned with DORA’s expectations for incident reporting and business continuity.
Practical Solutions with Kern AI: Harnessing Generative AI for Seamless Compliance
Using large language models (LLMs) via Kern AI’s Cognition, financial institutions can tackle DORA’s complex compliance demands more efficiently. Integrating LLMs with proprietary data enables institutions to automate document-heavy workflows, continuously monitor for compliance risks, and respond to incidents swiftly, all while upholding data security standards.
Document Management and Compliance Verification: Cognition simplifies the document analysis process, allowing institutions to quickly assess compliance-related terms, flag inconsistencies, and identify gaps. This automation replaces manual reviews, accelerating processing times and reducing the risk of human error.
Enhanced Third-Party Risk Assessment: Given DORA’s strong focus on third-party risk management, Cognition enables financial institutions to continuously assess their ICT vendors by analyzing contracts and compliance terms, helping institutions maintain vigilant oversight without intensive manual intervention.
Through Cognition, financial institutions can reduce compliance costs, enhance accuracy, and meet DORA’s requirements with increased efficiency.
Conclusion
The EU’s Digital Operational Resilience Act (DORA) sets a high bar for financial institutions, demanding greater ICT risk management, data security, and operational resilience. As the January 2025 deadline looms, institutions are investing heavily in compliance strategies and adopting advanced technologies to meet DORA’s rigorous demands. Leveraging AI-driven tools like Kern AI’s Cognition offers a forward-looking solution, simplifying compliance management, strengthening real-time monitoring, and optimizing regulatory reporting. As financial institutions continue to navigate an increasingly complex regulatory landscape, AI represents a powerful asset, ensuring resilience and secure operations in an evolving digital world.
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