Due Diligence

Due diligence in the compliance context is a critical risk management activity that helps organizations understand and manage the risks associated with third-party relationships. It involves assessing a partner's or vendor's financial health, legal compliance, security practices, operational capabilities, and reputation before establishing a formal relationship.

DORA elevates the importance of ICT due diligence by requiring financial entities to assess the risks of ICT third-party service providers both before entering into contracts and on an ongoing basis. Key due diligence areas under DORA include the provider's information security certification status, geographic location of data processing, subcontracting arrangements, concentration risk implications, and exit strategy feasibility.

Effective due diligence processes are typically risk-based, with the depth and frequency of assessment proportional to the criticality of the service and the sensitivity of data involved. Automated vendor risk management platforms can streamline this process by standardizing assessments and continuously monitoring provider risk profiles.