FinTech & Cybersecurity Regulatory Frameworks
What is FinTech
The rise of mobile technology and decentralized finance (DeFi) has fueled the rapid growth of Financial Technology (FinTech). FinTech refers to digital applications that streamline financial transactions, making payments, investments, and banking more accessible and efficient.
From online shopping to car insurance, FinTech simplifies everyday transactions with seamless digital solutions. It has also transformed investment opportunities, from traditional real estate to modern digital currencies.
The mainstream adoption of the internet led to the rise of online marketplaces like eBay, which initially required users to enter credit card details for every purchase. PayPal, co-founded by Elon Musk, revolutionized online payments by introducing a simpler, more secure method. This innovation paved the way for mobile banking apps, enabling banks to extend their services beyond physical branches.
Today, FinTech has given rise to app-only banks like Monzo and Revolut, eliminating the need for brick-and-mortar locations. These digital banks have changed how users manage money while traveling. Meanwhile, investment apps like Robinhood empower users to trade stocks with ease.
As FinTech continues to evolve, its impact on global finance grows, making transactions faster, safer, and more convenient.
What is Regulation
Providing financial services comes with immense responsibility, especially in an industry where customer trust hinges on security. FinTech providers must prevent financial losses while complying with strict global regulations governing both financial and technological operations.
Finance remains one of the most heavily regulated industries, and FinTech companies must meet both financial and cybersecurity compliance standards. Cyber threats pose significant risks to financial platforms, making robust security measures and regulatory compliance essential.
Cybersecurity plays a critical role in regulatory requirements. FinTech firms must implement and properly configure security tools to protect their systems. Beyond technology, strong ICT processes must be in place to handle potential breaches effectively. Regulations ensure FinTechs follow best practices in both system security and incident response.
This article breaks down the European Union’s Digital Operational Resilience Act (DORA), explaining its key provisions and offering a step-by-step roadmap for achieving compliance.
Digital Operational Resilience Act (DORA)
DORA was introduced by the EU in January 2023 to be fully implemented by January 2025. DORA is made up of the following 5 Pillars:
- ICT Risk Management
- Incident Reporting
- Digital Resilience Testing
- Third Party Risk Management
- Information Sharing
The aim of DORA is to protect the end customer. The regulation is designed to ensure that FinTechs take every possible step to prevent customer financial loss. The emphasis is on pragmatic steps to avoid system breeches. The regulation also ensures that FinTech operates a framework to deal with breeches that do occur.
ICT Risk Management
FinTech services operate entirely online, relying on a complex IT infrastructure that serves as both their backbone and primary vulnerability. Identifying and mitigating risks within this infrastructure is crucial. Every component must be assessed for potential threats, with clear strategies in place to minimize exposure.
Maintaining an asset inventory allows FinTechs to track dependencies, evaluate risks, and implement mitigation strategies effectively. By mapping risks to specific assets, organizations can prioritize security measures and ensure resilience.
Proactive IT infrastructure monitoring strengthens risk management. Security Information and Event Management (SIEM) tools enable real-time threat detection, helping FinTechs identify and respond to cyber threats before they escalate.
Incident Reporting
Even with strong cybersecurity measures, incidents remain inevitable. DORA regulations require FinTechs to establish clear reporting processes to manage and resolve security breaches efficiently.
Each incident must be classified by severity and impact, ensuring a structured response. Critical incidents demand immediate attention and must be reported to regulators, allowing organizations to analyze patterns and implement long-term preventive measures.
Automated threat detection tools streamline incident reporting. When an attack targets IT infrastructure, integrated security systems can generate automatic alerts within an IT Service Management (ITSM) tool, enabling engineers to investigate and resolve threats swiftly.
Digital Resilience Testing
The DORA regulation takes into consideration the continuous evolution of technology. Technology and the sophistication of technology does not stand still. The tools at the disposal of Hackers and Attackers are continuously improving and therefore, Cyber Security system providers need to keep up with these advances in their own solutions.
The worst case scenario for any FinTech business would be to be hacked and as a result lose its customer data. This can lead to a demand for ransom. Another worst case scenario is system downtime due to a denial of service attack. Customers unable to log in to their accounts and or not be able to carry out transactions will result in lost customers.
DORA compliance reduces these types of scenarios. FinTechs can review the effectiveness of their Cyber Security tools by carrying out Digital Resilience Testing.
Furthermore Digital Resilience Testing defines how FinTechs react to system breeches. How was it reported and responded to? What processes are defined and were they followed?
External auditors can measure the effectiveness of such hacking and cyberattacks. This will allow FinTechs to ensure compliance from approved third-party assessors.
Third Party Risk Management
Third party engagement is the norm for FinTechs. It is impossible to provide the entire solution in house. The most obvious example of a third party supplier is the cloud provider whether that be Azure or AWS. Such third party suppliers also must be DORA compliant.
DORA stipulates that FinTechs must identify and map out all third-party suppliers, including vendors and cloud providers. Each one needs to be assessed and scrutinised.
Assessment and scrutiny starts but does not end with Cyber Security Resilience. The appropriate tools need to be in place to ensure that third party services are as secure as the Fintech itself.
As previously mentioned despite the pragmatic approach to avoid problems, incidents still do occur. This certainly can apply to third parties also. Fintech suppliers need to have an exit plan in place should such problems occur regularly, and if third parties cannot hold onto their DORA-compliant status.
Information Sharing
Information sharing has long been a proven best practice in the financial industry. With fraudsters constantly targeting financial institutions, organizations have established networks to exchange critical insights and prevent attacks.
For example, insurers combat fraud by sharing suspicious customer details, such as names and addresses, to identify repeat offenders. FinTech companies and financial institutions can apply the same strategy by exchanging intelligence on hackers, attack methods, and proactive defense measures.
Joining industry-specific networks enhances knowledge-sharing and strengthens cybersecurity. Cybercriminals often repeat their tactics, making intelligence-sharing essential for reducing their impact.
Establishing secure protocols for sharing breach details ensures sensitive information remains protected while helping industry peers implement stronger security measures. Lessons learned from incidents contribute to a safer financial ecosystem, increasing customer confidence in digital services.
Cross-sector cybersecurity drills further enhance resilience. By collaborating on simulated attack scenarios, FinTech providers can identify vulnerabilities and strengthen defense mechanisms, creating a more robust cybersecurity framework.
Roadmap for Resilience
Any kind of regulatory implementation can be very overwhelming. The sheer volume and complexity of laws bears the question, Where do you start? The following is a high level Roadmap which breaks down the compliance into digestible and more manageable chunks.
Assign a DORA Compliance Team
Building a dedicated team of key stakeholders is essential for managing DORA compliance effectively. Including members from both strategic and operational levels ensures a comprehensive approach. Bringing in an external expert with regulatory knowledge can further strengthen compliance efforts by stress-testing policies and identifying gaps.
Gap Analysis
As mentioned above, it can be daunting to know where to start from. One possible starting point is assessing what is currently in place. Are there any legacy regulatory compliance requirements that your service adheres to that have been inherited by the existing regulation? You can compare this with the current requirements and see what gaps exist.
Invest in Resilience Technology
Strengthening cybersecurity requires implementing advanced technologies to prevent breaches and cyberattacks. Deploying solutions like SIEM, endpoint protection, and threat intelligence enhances security. Proper installation and configuration should align with customer-facing services, while proactive monitoring tools ensure continuous threat detection and response.
Educate Employees
Meeting regulatory requirements demands continuous review and adjustment, making it an ongoing effort driven by stakeholders. Successful implementation requires integrating compliance into daily business operations, ensuring employees stay informed and properly trained.
Many corporations already conduct annual training programs, but FinTech firms must go further. Introducing new features may require immediate adjustments to maintain DORA compliance, reinforcing the need for proactive education and real-time regulatory alignment.
Engage Regulators Early
To ensure good progress and keep on track, it is always a good idea to have an open dialogue with EU Regulators. Designing and implementing compliance can be time-intensive and expensive. Regulators can continue to review FinTech progress and provide guidance should the FinTech veer off track. This will save on unnecessary costs and wastage of valuable time.
This article was written by Jajhar Singh. Jajhar has 20 years of experience in the IT Services Industry, he writes in areas such as Technical Documentation and Copywriting.
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