Quantum computing is a new paradigm with the potential to tackle problems that classical computers cannot solve today. Unfortunately, this also introduces threats to the digital economy and particularly the financial sector.
The Digital Operational Resilience Act (DORA) is a regulatory framework that introduces uniform requirements across the European Union (EU) to achieve a “high level of operational resilience” in the financial services sector. Entities covered by DORA — such as credit institutions, payment institutions, insurance undertakings, information and communication technology (ICT) service providers, etc. — are expected to comply by January 17, 2025.
New requirements for financial entities in the EU
DORA lays out a set of requirements across ICT risk management, incident reporting, operational resilience testing, cyber threat and vulnerability information sharing, and third-party risk management. As part of those requirements and in the context of data protection and cryptography, it lays out in Article 9 (“Protection and prevention”) that financial entities “shall use ICT solutions and processes” that “(a) ensure the security of the means of transfer of data” or “(c) prevent […] the impairment of the authenticity and integrity, the breaches of confidentiality and the loss of data.”
Further elements to consider in the context of Article 9 are referred to in Article 15 and laid out in the related (draft) regulatory technical standards, which the ESA published on January 17, 2024. Particularly, JC 2023 86 provides detailed requirements on cryptographic guidance. In addition, in its preambles, the following is stated:
“Given the rapid technological developments in the field of cryptographic techniques, financial entities […] should remain abreast of relevant developments in cryptanalysis and consider leading practices and standards and should hence follow a flexible approach based on mitigation and monitoring to deal with the dynamic landscape of cryptographic threats, including those from quantum advancements.”
Below, we will further elaborate on the referred ‘cryptographic threats’ and the implications they could have on financial institutions in the context of quantum computing.
Quantum threats and quantum-safe cryptography
While current quantum computers still struggle with noise and are not yet “fault-tolerant,” impressive milestones have been reached already proving their utility. Given the number of investments being made in both the private sector and academia, it is expected that this technology will scale and drastically improve over time. As it does, the potential threat to the digital economy will grow.
In 1994, the physicist Peter Shor introduced an algorithm that, when run on a large-scale quantum computer, could break public key-cryptography algorithms such as Rivest-Shamir-Adleman (RSA), Diffie-Hellman and Elliptic Curve Cryptography (ECC). The financial sector relies on these algorithms to ensure the confidentiality and integrity of bank transactions, the authenticity of its customers, the validity of digitally signed documents and the confidentiality of customer financial data. If the supporting cryptography can no longer be trusted, the entire financial sector is at risk.
Quantum threats posed to cryptography
To break today’s cryptography, a so-called Cryptographically Relevant Quantum Computer (CRQC) would need to be realized (some experts estimate it could happen in the early 2030s). However, while the impact is in the future, we are at risk already. One can imagine an attacker harvesting encrypted confidential data today to decrypt it later.
Fast-tracking quantum-resistant cryptography
Fortunately, new “quantum-safe” cryptography is being standardized, with the most noteworthy effort being run by the National Institute of Standards and Technology (NIST). In 2016, NIST launched a competition with more than 80 submissions to standardize a new form of cryptography that will run on ordinary systems (e.g., laptops, cloud, etc.) but will be resistant to a quantum attacker because it relies on mathematical problems that are hard to solve by a quantum (and classical) computer.
The first four algorithms for standardization were selected by NIST in July 2022 (out of which three were co-contributed by IBM). While the standards are planned to be released in 2024, additional alternate candidates are still being considered.
NIST standardization timeline for quantum-safe (aka ‘post-quantum’) cryptography
A quantum-safe cryptography standard is in sight. Unfortunately, due to the complexity of the financial sector in particular, a lengthy journey lies ahead. NIST assumes that “five to 15 or more years will elapse […] before a full implementation of those standards is completed.” If we overlay this with the development timelines of a CRQC, one realizes that entities have to start this journey today.
Why quantum has an impact on DORA
Quantum threats, when they materialize, have the potential to drastically impact the operational resilience of financial entities and could disrupt the economy globally. Fortunately, new quantum-safe cryptography algorithms are available (with standards very soon to be published), which will be needed to mitigate those threats.
If we relate this to the requirements of DORA, we can draw several direct links. To satisfy Article 9, financial entities will need to adopt quantum-safe means of data transfer, as well as quantum-safe mechanisms to “prevent […] the impairment of the authenticity and integrity, the breaches of confidentiality and loss of data.”
This implies the need to adopt upcoming, quantum-safe data-in-transit protocols such as quantum-safe transport layer security (TLS) or quantum-safe virtual private networks (VPNs), as well as quantum-safe mechanisms for signing (legally binding) documents or bank transactions. As a result, financial entities will need to implement supporting infrastructure such as quantum-safe public key infrastructure (PKI) and key management systems.
Additionally, implementations today are often in the hands of third-party suppliers. To add to the complexity, in many cases, existing programs, such as a “move to cloud” or “zero trust” implementation, will be impacting several of the above-mentioned elements.
Quantum threats can have serious consequences
In a worst-case scenario, if financial services organizations do not remediate quantum threats in their digital ecosystem, this can impact the resilience of their business by:
- Being unable to verify authorized users on their network leads to confusion and a complete lack of trust in their digital ecosystem.
- Being unable to fulfill their data privacy regulations due to a lack of trust in the mechanisms (e.g., encryption) used to protect such data.
- Increased risk of exposure to external threats from the presence of vulnerable cryptography protocols and algorithms on business-to-business and supply chain networks.
- Disruption of day-to-day business from downtime required to remediate digital services and applications.
Given current draft requirements as per JC 2023 86, one can anticipate that soon after quantum-safe cryptography is standardized, it will be considered an account-leading practice. Hence, regardless of when quantum threats might materialize, regulatory requirements, such as DORA, will soon implicitly mandate the adoption of quantum-safe cryptography in the financial industry.
At the same time, organizations should seize the opportunity to improve their overall cryptographic agility by modernizing the way cryptography is implemented today and making future changes much more timely and cost-efficient.
Implement your quantum-safe migration
It is clear that implementing quantum-safe cryptography will not be an easy endeavor. Such a migration program will require agility and also offers the possibility to exploit an early mover advantage. It will require a multi-pronged approach, including top-down business priorities as well as bottom-up technical capabilities.
We recommend the following steps that organizations impacted by DORA should take at a minimum:
- Assess and review your enterprise cryptographic posture and identify elements (applications, networks, strategic projects, etc.) potentially impacted by quantum threats.
- Develop a plan based on business priorities and take into account synergies with existing transformation programs, laying out an approach to remediation for the impacted digital services and corresponding systems.
- Improve your cryptographic posture by introducing cryptographic discovery and inventory capabilities. Introduce cryptographic observability to validate cryptographic compliance on an ongoing basis, including leveraging “cryptography bills of material.” Such elements will increase the cryptographic agility of your organization.
- Ensure current change processes and strategic projects take into consideration the impact of cryptography and provisions are made to implement remediation on the least disruptive basis.
- Sponsor a program to continue the steps above continually.
Above all, do not wait to begin tackling these steps. We strongly recommend that organizations define a quantum-safe migration program today.
Start your quantum safe journey