6 DORA Contracting Risks for Financial Institutions — and How to Address Them

In July 2024, a routine software update from a major cybersecurity vendor triggered a cascading IT outage—crippling financial institutions worldwide. Trading systems went offline, payment networks stalled, and customer portals froze. It wasn’t a cyberattack. It wasn’t a data breach. The now-renowned CrowdStrike outage was a failure of third-party risk oversight, buried in contractual fine print. 

Fast forward to January 17, 2025—the Digital Operational Resilience Act (DORA) is now fully in effect, forcing financial institutions to ask a critical question:
When your vendors—or their subcontractors—fail, does your contract protect you?

For General Counsels and Heads of Compliance, the message from regulators is clear: DORA-readiness is no longer solely an IT issue; it’s now equally a legal and contractual one. Reviewing and remediating hundreds—if not thousands—of ICT contracts is no longer optional, yet the process is fraught with complexity, delays, and legal blind spots. That’s why we’re breaking down six critical DORA contracting risks—and the strategies to fix them before they become liabilities. 

Why Contract Compliance is Critical Under DORA

Legal teams in financial institutions are no strangers to complex regulatory frameworks like MiFID II, PSD2, or GDPR. But DORA changes the game, elevating ICT risk management from a governance best practice to an explicit, enforceable contractual obligation across all ICT third-party relationships — deviating from the usual traditional outsourcing. 

What's at stake? 

A pre-DORA survey revealed that only 20% of EU financial services firms were fully prepared for the regulation, highlighting a widespread readiness gap. This gap necessitates a systematic review of ICT contracts’s key amendments to ensure compliance, or else risk exposure to:

• Regulatory fines for failing to enforce resilience obligations in vendor agreements.
• Operational disruptions caused by unclear incident response or BC/DR terms.
• Reputational damage if regulators, customers, or investors lose confidence in your ICT risk management.

Historically, ICT risk was treated as a subset of broader operational risk. DORA changes this, making it a distinct compliance pillar that must be explicitly reflected in contracts. This means legal teams must conduct a thorough gap analysis and establish ongoing monitoring processes to ensure all existing vendor agreements align with DORA’s resilience, security, and incident response mandates.

So where do the risks lie? Below, we explore seven contractual pitfalls under DORA—and the strategies to fix them before they cost your institution money, compliance, and credibility. 

1. Inadequate BC/DR Provisions

Business Continuity/Disaster Recovery (BC/DR) planning’s financial impact can be way more catastrophic than we can imagine.

Under DORA, financial institutions must verify that third-party ICT providers are implementing solid business continuity and disaster recovery frameworks, including explicit Recovery Time Objectives (RTOs) Recovery Point Objectives (RPOs), and structured incident response obligations.

Some agreements rely on generic “best effort” clauses that fail to specify testing frequency or delineate incident response responsibilities. Such vagueness can leave general counsel scrambling to prove compliance when a critical service fails.

Action Steps 

Be sure to embed detailed BC/DR obligations, complete with regular test schedules, collaborative remediation pathways, and liability-sharing terms. Have clear objectives, including specific RTO and RPO, that delineate the roles and responsibilities of both the financial institution and the service provider during ICT incidents.

To support regular testing on BC/DR, Execo’s Intelligent Digitization ensures that critical contractual obligations are proactively tracked, flagged for updates, and validated to prevent compliance drift.

2. Weak or Ambiguous Incident Reporting Obligation

43% of Chief Legal Officers (CLOs) identified global regulatory changes as a primary driver for increased legal oversight — making DORA’s tight incident reporting requirements particularly pressing. 

Under DORA, financial institutions may have only hours to initially disclose severe ICT incidents, leaving zero tolerance for ambiguous definitions of a “major incident” or unclear notification channels. These gaps can trigger disjointed crisis responses and, ultimately, lead to regulatory penalties. 

General Counsels and legal teams are typically diligent in ensuring vendor compliance, yet thousands of pages of ICT agreements—often steeped in outdated or inconsistent language—can hide clauses that no longer align with DORA’s fast-evolving mandates. Even a single overlooked provision, like an obsolete incident-reporting timeline or undefined reporting criteria, can jeopardize compliance.

Action Steps

Develop a taxonomy (e.g., critical, high, medium, low) and link each classification to a specific reporting timeframe. This approach eliminates confusion and ensures consistent escalation processes. 

Establish both internal and external communication pathways, so vendors know exactly who to contact and when. Standardizing these channels minimizes guesswork in a crisis. Also set up both internal and external notification channels so vendors know who to contact and when. 

Automate wherever possible. Execo’s GenAI-powered Contract Managed Services continuously digitizes and structures your ICT agreements, ensuring critical clauses—from incident reporting to continuity terms—are immediately surfaced for review. Instead of spending countless hours on manual reviews, GCs gain immediate insight into where clauses are located and how they align with DORA. 

Beyond GenAI, Execo’s human-in-the-loop legal experts validate extracted clauses, accelerating reviews and ensuring every detail aligns with DORA’s evolving mandates — so you stay ahead of regulatory scrutiny.

3. Omission of Specific Operational Resilience Clauses (SLAs, KPIs)

DORA mandates financial institutions to enforce continuous performance monitoring — an obligation often overlooked in generic Service Level Agreements (SLAs). Contracts that fail to define explicit operational resilience metrics, such as uptime commitments, recovery times, and security KPIs, may result in regulatory non-compliance, heightened scrutiny, and potential enforcement actions. 

Then there is vague or outdated language that complicates implementation. Take a simple "commercially reasonable efforts" clause, for instance. It might not give you a solid legal ground to stand on if a vendor's failure causes a regulatory breach. DORA's requirement for enforceable agreements makes such vague terms a compliance risk.

Action Steps

Execo’s Contract Managed Service ensures SLAs and KPIs remain up-to-date with evolving DORA requirements. Our AI-driven tracking and expert-led validation help financial institutions continuously monitor vendor performance and enforce contractual obligations without administrative overhead. 

Embedding penalty and remediation clauses strengthens accountability by outlining financial or operational consequences for failing to meet agreed-upon benchmarks. Execo’s legal managed services help ensure that performance deficiencies trigger corrective actions, whether through service credits, contract renegotiations, or, in extreme cases, termination rights. 

4. Inadequate Controls for Subcontracting (Chain Outsourcing)

Subcontracting introduces a layer of risk beyond the primary vendor, potentially compromising compliance if the subcontractor fails to meet DORA’s requirements. Without properly structured flow-down provisions—where all resilience, security, and reporting obligations extend to subcontractors—financial institutions risk losing control over critical outsourced ICT functions, including compromised incident reporting, weakened resilience testing, and data breaches.

A report by the European Supervisory Authorities emphasizes that financial entities must assess risks associated with subcontracting during the pre-contractual phase, yet many institutions only discover gaps when an issue arises. 

Action Steps

Implement a governance framework that continuously monitors subcontractor compliance. This includes requirements for prior notification and approval of any subcontracting arrangements. Execo's Intelligent Digitization can further support this by ensuring DORA-compliant flow-down provisions, extracting and verifying subcontracting clauses, and providing ongoing visibility. 

In compliance with DORA Article 30, contracts are required to outline termination and exit strategies to ensure minimal disruption when subcontractors fail to meet resilience requirements. 

5. Lack of Robust Audit and Monitoring Rights

Financial institutions must now actively oversee and continuously monitor third-party ICT providers, going beyond vendor self-attestations. 

Contracts that lack explicit audit and access rights expose institutions to unchecked risks — including cybersecurity, operational, and regulatory — as vendors may resist scrutiny by citing confidentiality concerns. Without contractual authority to conduct on-site or remote audits, financial institutions face limited visibility into vendor controls and compliance gaps. 

Action Steps 

Contracts must explicitly establish the right to conduct regular audits, including on-demand reviews, access to security documentation, and direct observation of vendor controls. However, DORA goes further—mandating continuous monitoring, not just periodic assessments. Institutions must implement automated risk evaluations, real-time performance tracking, and ongoing compliance checks to maintain vendor resilience.

This is where Execo’s Contract Performance solution bridges the gap between audit and action. Rather than treating compliance as a static review process, Execo ensures continuous vendor oversight, tracking contractual obligations, SLAs, and compliance gaps in real-time. The system functions as an early warning mechanism, proactively flagging risks, overdue remediations, and potential compliance breaches—enabling timely intervention before issues escalate. 

6. Non-Compliant Documentation Practices

DORA mandates comprehensive, structured documentation of ICT risk management frameworks, incident response plans, digital resilience testing, and third-party service agreements to ensure auditability, traceability, and regulatory oversight. This means keeping a real-time, auditable trail of system logs, security incidents, prior audit findings, and remediation efforts—all in a format that ensures availability, integrity, and confidentiality (Article 9).

Failure to explicitly define how records are maintained, updated, and shared with competent authorities during regulatory reviews creates gaps in compliance visibility, increasing the risk of enforcement actions.

Missing or inconsistent documentation can be just as damaging as non-compliance itself. Under Article 17, financial entities must log and report ICT-related incidents in a standardized, traceable manner, ensuring regulators receive complete, timely updates. 

Action Steps 

To stay ahead of compliance, financial institutions must move beyond fragmented, manual documentation and adopt centralized, automated record-keeping. This means consolidating all records into a system that ensures continuous monitoring, rather than waiting for audits to assess compliance. 

Execo’s GenAI-powered intelligent contract digitization ensures institutions maintain an audit-ready repository by surfacing and categorizing contract-specific compliance elements, including vendor risk terms, regulatory obligations, and audit rights. With summary reporting and dashboard visualizations, legal and risk teams gain instant insights into critical clauses, upcoming deadlines, and regulatory gaps. 

Turning Compliance Into Opportunity

DORA isn’t just a box to check—it’s a chance to elevate operational resilience and spotlight board-level accountability. For financial institutions grappling with sprawling ICT environments, addressing new regulatory standards can strain resources and governance structures. Yet instead of treating DORA as a burden, legal teams can use this moment to secure executive buy-in for stronger risk management and future-proofed infrastructures that withstand both current and upcoming regulatory demands.