As technology becomes increasingly critical to financial services, The upcoming Digital Operational Resilience Act (DORA) aims to ensure financial institutions across the EU minimize risks and address digital operational resilience. These new regulations focus on enhancing the operational resilience of financial entities by mandating strengthened IT security measures, detailed incident reporting, and robust risk management processes. Companies must have robust practices in place to manage potential operational disruptions for in-house and 3^rd party solutions alike.  

DORA targets several key areas: risk management, incident reporting, digital operational resilience testing, and outsourcing. Compliance is not optional, as non-adherence could lead to significant penalties. Financial entities must take proactive steps to address these areas, ensuring that their IT systems can withstand, respond to, and recover from all types of threats and disruptions. In addition, financial institutions must adhere to rigorous guidelines to safeguard against ICT-related incidents. These guidelines encompass measures for protection, detection, containment, recovery, and repair. DORA specifically addresses ICT risks by establishing definitive rules for ICT risk management, incident reporting, operational resilience testing, and the management of ICT third-party risks. The regulations have incorporated specific references to certain areas that were perhaps previously overlooked but need to be addressed with the increasing reliance on 3^rd-party services. Supplier failure risks such as insolvency require attention and consideration, as well detailing stressed exit plans that are tested.  

One strategy that can help institutions meet these parts of the regulations is engaging a software escrow service. 

Software escrow services provide a mechanism for safeguarding the continuity of service in the event a software vendor cannot fulfill their obligations or is unable or unwilling to service its customers. At its core, a software escrow involves a contractual arrangement where a third-party escrow agent holds the source code, data, and documentation of a software application with verification of deployment processes and assets. In the event of a specific trigger, such as the vendor’s bankruptcy or potential breach of contract, the code and associated materials are released to the licensee, ensuring that the financial entity can maintain continuity and support the critical software system. SaaS escrow is also often utilized by financial institutions for cloud-hosted applications, which typically incorporates additional considerations such as credentials to a dedicated production cloud environment to support continuity risks and/or the assistance of an escrow agent for support services should a supplier fail. With testing stressed exits being a key part of DORA, escrow provisions and use of an escrow agent is the only way to verify these exit or recovery plans for 3^rd party intellectual property such as a SaaS solution. These tests can include redeploying the solution in another environment for recovery testing purposes or testing the transfer of cloud subscriptions.  

In the context of DORA, utilizing a software escrow service can enhance risk management strategies by ensuring that there is a contingency plan in place for key software applications. DORA’s emphasis on resilience testing states that financial institutions must regularly test their IT systems and stressed exit plans against various scenarios. Having software escrows in place allows institutions to regularly assess and validate this. Aligning with DORA’s objectives by ensuring that financial institutions have measures to recover swiftly from vendor-related disruptions and confidence in their ability to respond to real-world disruptions. By testing the materials held in escrow through periodic verifications, institutions can ensure the viability and usability of the application and data—critical factors for maintaining operations during disruptions. 

Lastly, outsourcing governance under DORA requires financial institutions to meticulously manage and monitor their third-party vendor relationships. Here, software escrow acts as an additional security layer within outsourcing agreements. It ensures that, even if external vendors’ operations become compromised, the institution retains functional access to essential software assets or cloud environments. 

As financial institutions prepare to comply with the impending DORA regulations, integrating software escrow services should be considered an integral part of their strategy. Not only does it support various aspects of compliance—ranging from risk management to incident response and resilience testing—but it also offers peace of mind by securing continued access to crucial technological resources. By recognizing software escrow as a proactive tool for regulatory adherence, financial institutions can bolster their operational resilience and better protect themselves against unforeseen disruptions. 

Contact us to get started with setting up software escrow for your business.