How should smaller financial firms approach DORA compliance without overengineering the programme?

Why proportional DORA implementation matters for smaller firms

Smaller financial firms usually feel DORA pressure in three places at once: governance, operational resilience, and third-party oversight. The regulation is not asking them to build a heavyweight security bureaucracy, but it does expect a defensible way to understand which services matter most, where technology dependencies sit, and how disruption would affect the business. The practical challenge is avoiding a programme that looks compliant on paper while adding more process than resilience.

DORA’s own framing is useful because it centres resilience rather than tools, and that makes proportionality the right starting point. A smaller firm should be able to explain why a control exists, what business function it protects, and how much assurance it delivers relative to the firm’s size and risk profile. That approach is more sustainable than copying a large-bank operating model that creates duplicate review layers, over-documentation, and slow decision-making. For a regulatory overview, see the EU Digital Operational Resilience Act (DORA).

In practice, many smaller firms discover they have overengineered DORA only after their evidence collection becomes harder to maintain than the controls it was meant to support.

How to build a lean compliance programme that still stands up

The best way to avoid overengineering is to organise the programme around business-critical services rather than around every system in the estate. That means first identifying the functions that would cause real customer, operational, or regulatory harm if they failed, then tracing the applications, infrastructure, people, and vendors that support those functions. Once that dependency map exists, the firm can decide where it needs strong controls, where basic controls are enough, and where a formal exception is more honest than creating a low-value process layer.

From there, a lean DORA programme usually works better when it is built as a small set of repeatable operating routines:

• one risk framework that covers ICT risk ownership, escalation, and review cadence
• one incident process that can classify, escalate, and evidence material events
• one testing plan that matches criticality, not theoretical completeness
• one third-party oversight model for the services that genuinely matter

This is also where smaller firms often need to be disciplined about evidence. Compliance is easier to defend when records are simple, current, and tied to actual decisions, such as why a supplier is critical or why a recovery objective was chosen. A control that cannot be maintained by a small team is usually not proportional, even if it looks thorough.

For a broad control baseline that can help structure lean operational safeguards, the NIST Cybersecurity Framework 2.0 is useful as a cross-cutting reference, provided it is adapted to the firm’s actual scale and regulatory obligations. The guidance stops being effective when firms treat documentation as the objective and allow governance overhead to crowd out timely remediation.

Where smaller firms usually go wrong with DORA scoping

Tighter scoping often improves resilience, but it also creates pressure to simplify too aggressively, so firms have to balance clarity against the risk of missing a dependency that actually matters.

The most common failure is treating all systems as equally important. That produces a bloated control set, weak prioritisation, and a testing programme that is too generic to be useful. The opposite mistake is equally damaging: under-scoping the programme so that outsourced services, shared infrastructure, or administrative access paths sit outside the resilience model. Both errors make compliance brittle, because the firm either spends too much effort on low-value controls or fails to protect the parts of the business that carry the most operational exposure.

There is also a genuine trade-off around vendor oversight. Smaller firms often do not have the leverage or staff to manage every supplier with the same intensity, so they need a risk-based approach that distinguishes core providers from ordinary ones. That is accepted practice, but it should not be confused with weak oversight. Where the supplier supports a critical function, the firm still needs visibility into recovery expectations, incident communication, and exit planning. More generally, DORA asks firms to know where their resilience depends on others, not to create a procurement process that slows every purchase.

Practitioner judgement matters most when a control starts generating more maintenance than assurance. At that point the right answer is usually to simplify, re-scope, or formally accept the residual risk, not to add another layer of approval.

Risk and Threat Considerations

For smaller firms, the main risk is not just non-compliance. It is building a resilience programme that creates a false sense of control while leaving critical dependencies, supplier concentration, and recovery assumptions untested. A thin organisation is especially exposed when core services rely on a handful of staff, one or two technology providers, or undocumented workarounds.

Failure mechanism: Risk materialises when firms map controls to documents instead of to actual service dependencies, so incident response, testing, and third-party oversight do not reflect how the business really fails under stress. That weakens detection of operational breakdowns and makes recovery slower than planned.

Impact: The firm can end up with disrupted client services, delayed regulatory response, unreliable recovery evidence, and a programme that is difficult to scale or defend during supervisory review.

Practitioner Guidance

What to prioritise: Start with the few business services whose failure would create the most operational or regulatory pain, then build controls only around the dependencies that support those services. If a control cannot be linked back to a critical service, it is usually a candidate for simplification.

What to verify: Verify that your incident, testing, and supplier records all point to the same dependency map. If those artefacts disagree, the programme is probably too fragmented to be reliable.

Trade-off: A leaner programme reduces maintenance burden, but only if the firm accepts that not every system, supplier, or control deserves equal treatment. The discipline is in prioritisation, not in trying to make every part of the estate look equally formal.

Practitioner takeaway: Smaller firms do best when they treat proportionality as an evidence problem, not a documentation problem: if the controls are easier to operate than to explain, the programme is probably in the right shape.

Related resources from NHI Mgmt Group

• How should financial firms use reusable KYC without weakening compliance?
• How should financial institutions balance DORA compliance with customer authentication experience?
• How should financial institutions include AI systems in DORA compliance programmes?
• How should organisations improve identity governance maturity without overengineering the programme?