DORA vs. NIS2 vs. PSD2: The Key Differences

In the rapidly evolving landscape of digital finance and cybersecurity, regulatory frameworks such as DORA, NIS2, and PSD2 play crucial roles in ensuring the security and resilience of organizations operating within the European Union (EU). Each of these regulations has distinct objectives, implementation timelines, and compliance requirements. This article delves into the key differences among DORA (Digital Operational Resilience Act), NIS2 (Network and Information Systems Directive), and PSD2 (Payment Services Directive 2), providing a comprehensive understanding of their implications for organizations.

Implementation Date

The timelines for implementing these regulations vary significantly. The deadline for NIS2 compliance was October 17, 2024, which has now passed. Organizations still have time to comply with DORA, as its implementation date is set for January 17, 2025. Meanwhile, PSD2 is already active across the EU, but proposed changes, often referred to as PSD3, are expected to be introduced in the coming years, potentially reshaping the regulatory landscape for payment services.

Regulation Type

Understanding the nature of each regulation is essential for compliance. NIS2 is a directive, which means that EU member states have the flexibility to develop national rules based on their specific requirements. In contrast, DORA is a sector-specific regulation that mandates uniform compliance across all EU member states, leaving no room for discretion. This means that DORA will be implemented identically in every EU country, while NIS2 allows for variations in transposition into national laws.

PSD2, on the other hand, is a regulatory framework that each EU member state can adopt and implement under its own legal system. This distinction is crucial, as it affects how organizations must approach compliance based on their jurisdiction.

Organizations Impacted

The scope of each regulation varies significantly in terms of the organizations it affects. NIS2 targets entities classified as either "essential" or "important." Essential entities include large enterprises providing critical services across 11 designated sectors, such as trust service providers and public administration entities. Important entities encompass all other organizations not classified as essential, including key digital service providers like cloud computing services and online marketplaces.

DORA primarily impacts financial entities and ICT service providers deemed critical by European regulators. This includes cloud service providers and their suppliers, emphasizing the importance of operational resilience in the financial sector.

PSD2 applies broadly to banks, financial institutions, and any organization involved in retail payments or financial services within the EU. Notably, organizations outside Europe may also be subject to PSD2 compliance if they serve customers in the region.

Cybersecurity Compliance

Cybersecurity compliance requirements differ significantly among the three regulations. NIS2 focuses on enhancing overall cybersecurity and mandates incident reporting and risk management through "appropriate and proportionate technical and organizational measures." This includes risk analysis, information security policies, incident handling, business continuity, and supply chain security.

DORA, however, is more prescriptive, introducing rigorous requirements for ICT risk management and incident reporting. It mandates specific provisions regarding ICT frameworks, incident response, and third-party ICT contracts. DORA’s requirements take precedence over NIS2 in cases of overlap, particularly concerning reporting obligations.

In contrast, PSD2 emphasizes security measures to mitigate fraud and cyber threats in the financial sector. It outlines five key compliance areas: open banking APIs, Strong Customer Authentication (SCA), customer transparency, rapid complaint resolution, and surcharge bans. The SCA requirement mandates multifactor authentication for user logins, enhancing security in digital transactions.

Incident Reporting Requirements

All three regulations impose stringent incident reporting requirements, but the specifics vary. NIS2 mandates an early warning within 24 hours, an incident notification within 72 hours, and a final report within one month. DORA’s requirements for "major" incidents include an initial notification within 24 hours, an intermediate notification within 72 hours, and a final report within one month. If an incident is reclassified from non-major to major, organizations must report this change immediately.

PSD2 requires payment service providers to report incidents to the FCA within two hours of detection, reflecting its focus on rapid response in the financial sector. Organizations must maintain security controls and policies that align with both PSD2 and DORA compliance.

Penalties for Noncompliance

The consequences of failing to comply with these regulations can be severe. Under NIS2, essential entities face fines of up to €10 million or 2% of their total worldwide annual turnover, while important entities may incur fines of up to €7 million or 1.4% of annual turnover. Additionally, NIS2 allows for the banning of C-level executives from future roles in cases of noncompliance.

DORA imposes corporate fines of up to 2% of annual turnover, with individual fines for employees reaching up to €1 million and fines for critical third parties up to €500,000.

For PSD2, institutions that fail to meet compliance requirements can face financial penalties of up to 4% of their annual returns, underscoring the importance of adherence to this regulatory framework.

Conclusion

In summary, while DORA, NIS2, and PSD2 share common goals of enhancing cybersecurity and operational resilience, they differ significantly in their implementation timelines, regulatory types, affected organizations, compliance requirements, incident reporting protocols, and penalties for noncompliance. Understanding these differences is crucial for organizations operating within the EU to navigate the complex regulatory landscape effectively and ensure compliance with the evolving demands of digital finance and cybersecurity. As the regulatory environment continues to evolve, organizations must remain vigilant and proactive in adapting to these changes to safeguard their operations and maintain compliance.