Introduction: Navigating Europe’s Digital Finance Evolution
The European financial sector is undergoing a profound transformation, driven by rapid digital innovation and an ever-evolving landscape of cyber threats. Navigating this complex environment requires financial institutions to stay abreast of critical regulatory developments like the Digital Operational Resilience Act (DORA), the Revised Payment Services Directive (PSD2), and its upcoming successor, PSD3. This article provides a practical, implementation-focused approach to understanding these regulations, emphasizing how to align digital operational resilience and payment services compliance without duplicating efforts.
This guide is specifically designed for Chief Information Security Officers (CISOs), Chief Risk Officers (CROs), compliance officers, and founders tasked with ensuring their organizations meet stringent regulatory demands while fostering innovation and operational efficiency.
DORA vs PSD2: Understanding the Foundational Differences
The Digital Operational Resilience Act (DORA)
Scope and Objectives: DORA casts a broad net, encompassing banks, insurers, investment firms, payment service providers, and even critical ICT third-party providers. Its primary objective is to strengthen the digital operational resilience of the EU financial sector by ensuring entities can withstand, respond to, and recover from all types of ICT disruptions and threats.
Key Pillars: DORA is structured around five main pillars:
- Holistic ICT Risk Management
- Streamlined Incident Reporting
- Rigorous Digital Operational Resilience Testing
- Robust Third-Party ICT Risk Management
- Enhanced Information Sharing
Applicability: DORA came into force on January 17, 2025. For expert guidance and solutions to ensure your DORA compliance, explore our expert DORA compliance solutions.
The Revised Payment Services Directive (PSD2)
Scope and Objectives: PSD2 specifically targets payment services and Payment Service Providers (PSPs), including banks, payment institutions, and e-money institutions. Its main goals were to foster an integrated and more efficient European payments market, enhance security, promote open banking, and bolster consumer protection.
Key Aspects: Notable features of PSD2 include Strong Customer Authentication (SCA), the regulation of Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs), enhanced consumer rights, and clearer disclosure requirements.
Key Differences Summarized
In essence, DORA provides a comprehensive, horizontal framework for overall digital operational resilience, while PSD2 is a directive focused specifically on the security and innovation of payment services.
DORA as ‘Lex Specialis’: Incident Reporting and ICT Risk Management
It’s crucial to understand that for entities in scope, DORA acts as a ‘lex specialis’ (special law) in areas where it overlaps with PSD2, particularly concerning incident reporting and ICT risk management. DORA establishes a more harmonized and stringent standard for these aspects, effectively superseding PSD2’s provisions in these domains. Maintaining a DORA compliant ICT risk register is fundamental to this holistic approach.
Introducing PSD3: The Next Evolution in Payment Services
PSD3, alongside the proposed Payment Services Regulation (PSR), represents the next phase in the evolution of payment services regulation in the EU. It aims to further enhance security, foster innovation, and improve the user experience within the payment ecosystem.
PSD3’s Key Enhancements and Objectives:
- Robust Strong Customer Authentication (SCA): Further strengthening authentication protocols to combat fraud.
- Enhanced Open Banking: Expanding access to payment accounts and promoting competition.
- Expanded Fraud Prevention: Introducing measures like IBAN-name verification and clarifying liability for PSPs in fraud cases.
- Regulation of New Payment Methods: Addressing emerging payment solutions like cryptocurrencies and Buy Now Pay Later (BNPL).
- Clear Communication and Transparency: Improving information provided to consumers.
- Unified Licensing Regime: Streamlining the licensing process for PSPs and e-money institutions.
Implementation Timeline for PSD3 and the Payment Services Regulation (PSR): While the exact dates are subject to legislative progress, the proposals are expected to be adopted in 2025, with full implementation potentially extending into 2026-2028.
DORA vs PSD3: Distinctions and Synergies for Future Compliance
While both DORA and PSD3/PSR aim to enhance the security and robustness of the financial sector, their focuses remain distinct:
- Broad Resilience vs. Payment-Specific Focus: DORA ensures the overall digital robustness and resilience of an entity’s ICT systems across all its operations. PSD3/PSR, conversely, sharpens the focus on the security, efficiency, and user experience specifically within the payment services domain.
- Overlapping Requirements for Secure Operations: Both regulations place a strong emphasis on robust security controls and the diligent management of third-party risks. PSD3/PSR aims to achieve greater coherence with DORA’s overarching resilience requirements, meaning that efforts to meet DORA’s stringent standards will significantly contribute to PSD3/PSR compliance. Maintaining awareness of the DORA Register of Information is also beneficial for understanding interconnected data requirements.
Strategic Alignment: Building a Unified Compliance Framework
To avoid duplicated efforts and maximize efficiency, financial institutions should adopt a unified approach to compliance. This involves integrating DORA and PSDx requirements into a single, coherent framework:
- Consolidating ICT Risk Management & Governance: Develop a singular ICT risk management framework that addresses the comprehensive requirements of DORA, while also incorporating the specific security mandates of PSD2 and PSD3.
- Harmonizing Incident Management and Reporting: Leverage DORA’s standardized incident reporting mechanisms to streamline and enhance existing PSD2 procedures. This ensures a consistent and efficient response to all types of ICT-related incidents.
- Integrating Digital Operational Resilience Testing: Design and implement comprehensive resilience testing programs that meet or exceed DORA’s requirements, including advanced scenarios like Threat-Led Penetration Testing (TLPT). These programs should naturally encompass and go beyond the scope of PSD2 security testing.
- Strengthening Third-Party ICT Risk Management: Apply DORA’s stringent oversight and management requirements to all ICT third-party providers supporting payment services. This includes rigorous due diligence, contract reviews, and proactive monitoring of fourth-party risks.
- Leveraging Technology and Automation: Utilize RegTech solutions, Artificial Intelligence (AI), and machine learning to automate compliance processes, enhance risk monitoring, and improve reporting accuracy and efficiency.
- Fostering Cross-Functional Collaboration & Training: Break down departmental silos and ensure that teams responsible for DORA and PSDx compliance work collaboratively. Provide role-based training to foster a shared understanding of regulatory obligations and best practices.
Common Pitfalls and How to Avoid Them
Navigating the complexities of DORA and PSDx compliance can present challenges. Awareness of common pitfalls is the first step towards effective mitigation:
- Misinterpreting DORA’s Scope and Depth: A common mistake is viewing DORA as a mere extension of existing IT security measures. It is a holistic act requiring deep integration into business strategy and governance. Avoidance: Conduct thorough gap analyses and actively seek to understand DORA’s broad scope, from ICT risk management to third-party oversight.
- Underestimating Third-Party Risk Complexity: The reliance on ICT third parties is a critical focus. Failing to adequately manage these relationships poses a significant risk. Avoidance: Implement DORA’s stringent clauses for third-party oversight, including enhanced due diligence and ongoing monitoring.
- Duplicating Efforts Across Regulatory Silos: Different teams working in isolation on DORA and PSDx can lead to redundant processes and missed synergies. Avoidance: Establish a unified governance structure and an integrated ICT risk framework that covers all relevant regulations.
- Resource Constraints and Operational Disruptions: Compliance can be resource-intensive, and rushed implementation can lead to errors or disruptions. Avoidance: Prioritize compliance activities based on risk, leverage automation where possible, and consider seeking expert support. For strategic guidance, explore our strategic vCISO services. It’s essential to avoid DORA compliance mistakes by planning ahead.
FAQs: Your DORA & PSD Compliance Questions Answered
No. While DORA builds upon many principles established by PSD2, it has a significantly broader scope and mandates more enhanced, holistic requirements for ICT risk management, incident reporting, resilience testing, and third-party oversight. PSD2 controls may form a foundational layer, but they are not sufficient on their own to meet DORA’s comprehensive demands.
The European Banking Authority (EBA) issues guidelines that provide detailed interpretations and specifications for regulatory frameworks. The EBA Guidelines on ICT and security risk management are highly relevant and align closely with DORA’s objectives. For entities in scope of DORA, these guidelines are integral to compliance and effectively supersede some of the earlier, less prescriptive PSD2 provisions related to ICT risk.
Payment Institutions are directly in scope for DORA. This means they must implement comprehensive ICT risk management frameworks, establish robust incident management and reporting processes, conduct rigorous digital operational resilience testing (including advanced scenarios), and ensure stringent management of their ICT third-party providers. DORA demands a proactive and holistic approach to their digital operations.
DORA: Fully applicable from January 17, 2025.
PSD3/PSR: The legislative proposals were expected to be adopted in 2025, with full implementation of the new rules likely to occur between 2026 and 2028, depending on the legislative process and transposition timelines.
Conclusion: Achieving Resilient and Compliant Financial Operations
Successfully navigating the evolving regulatory landscape of DORA and PSDx requires a strategic, integrated approach. By consolidating ICT risk management, harmonizing incident reporting, implementing robust testing, and diligently managing third-party risks, financial institutions can build a unified compliance framework that not only meets regulatory obligations but also enhances their overall digital operational resilience.
Key Takeaways for Financial Institutions:
- Develop an integrated strategy that views DORA and PSDx as interconnected mandates.
- Establish a unified ICT risk management framework that covers all compliance obligations.
- Harmonize incident reporting processes for consistency and efficiency.
- Implement robust resilience testing programs that meet evolving threats.
- Prioritize proactive and comprehensive third-party risk management.
At CyAdviso, we understand the intricacies of these complex regulations. We offer specialized expertise in DORA readiness, gap assessments, and provide strategic support through our vCISO and compliance services. Partner with us to ensure your organization achieves proactive, efficient, and compliant operations. Explore our expert DORA compliance solutions.