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Summary and Comments

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Category: 

Banking

Date: 

1998-04-09 11:25:27

Subject: 

Bank for International Settlements: Press Release on Y2K

  Link:

http://www.bis.org/wnew.htm

Comment: 

The BIS is referred to as the central bankers' central bank. On April 9, it published a press release on its site. It can be found under "what's new."

What is significant in the report is the admission that y2k is a systemic problem. Also important is the admission of the need for contingency plans in case of a breakdown.

Problem: What is a realistic world contingency plan for the collapse of the banking system?

This document, for all of its subdued language, is basically a fire alarm. But no one knows how to put out the fire.

Consider these words:

"In particular, market participants from regions that have not yet vigorously tackled the problem should consider the need to invest significant resources in the short time that remains." . . .

"Failure of these organisations to prepare adequately and share information on their plans in order to promote effective testing could lead to serious disruptions in the world's financial markets." . . .

"Because widespread testing has not yet begun, the extent of the problems and the amount of remediation work that remains is unclear."

"Financial industry conventions and dispute resolution procedures should be developed to address the possibility of transaction failures. Additionally, contingency measures should be considered for the potential failure of key parts of the financial market infrastructure." . . .

"Even if an institution has verified and tested all its internally developed systems and applications, it will be affected by: the state of readiness of its vendors and third-party service providers; the public utilities upon which it relies, particularly the telecommunications and electricity suppliers; the infrastructures that it relies upon for its trading, payment and external information needs; and the counterparties and customers upon which its business viability rests. Moreover, the globalisation of financial and economic activity and the widespread use of information and telecommunications technology throughout the world has created various international interconnections and global interdependencies which add greatly to the complexity of the challenge."

* * * * * * *

Global Round Table on the Year 2000

On 8th April the Bank for International Settlements hosted a Round Table on the Year 2000, jointly sponsored by the Basle Committee on Banking Supervision (Basle Committee), the Committee on Payment and Settlement Systems (CPSS), the International Association of Insurance Supervisors (IAIS) and the International Organization of Securities Commissions (IOSCO). The meeting was attended by more than 200 senior executives (from 52 countries) representing a variety of public and private sector organisations in the financial, information technology, telecommunications and business communities around the world. . . .

Sponsors' recommendations

1.Awareness of the seriousness and scope of the problem is high but varies considerably across markets and institutions worldwide. The sponsors believe that it is imperative that all market participants, and especially financial market supervisors, work to ensure that Year 2000 preparations receive the maximum senior management attention and priority, including at the board of directors level. In particular, market participants from regions that have not yet vigorously tackled the problem should consider the need to invest significant resources in the short time that remains.

2.Testing for Year 2000 readiness is the most critical and complex issue facing the financial industry. Because widespread testing has not yet begun, the extent of the problems and the amount of remediation work that remains is unclear. The sponsoring organisations urge market participants to explore ways to enhance the transparency of testing results.

3.The sponsors consider it critical that financial market supervisors around the world implement programmes that enable them to assess the Year 2000 readiness of the organisations and market infrastructures that they supervise. Further, it is important for supervisors to ensure that the risks related to the century date change are identified, properly communicated among market participants and appropriately managed in their jurisdiction.

4.The sponsoring organisations agree that the highest possible priority should be given to Year 2000 preparations by telecommunications and electricity providers in each national jurisdiction. Failure of these organisations to prepare adequately and share information on their plans in order to promote effective testing could lead to serious disruptions in the world's financial markets.

5.In order to achieve a greater degree of market transparency, the sponsors believe that the sharing of critical information on Year 2000 readiness by all market participants is essential. The sponsors encourage private sector efforts to develop standard questionnaires and frameworks for Year 2000 disclosure as these have the potential to provide clear means for measuring progress.

6.Financial industry conventions and dispute resolution procedures should be developed to address the possibility of transaction failures. Additionally, contingency measures should be considered for the potential failure of key parts of the financial market infrastructure. Further, it is recognised that national payment systems need to coordinate testing schedules in order to provide opportunities for end-to-end testing on a domestic and international basis. The Round Table sponsors welcome and support the initiatives taken by various industry groupings in this respect. . . .

DETAILS ON THE DISCUSSIONS AND CONCLUSIONS OF THE YEAR 2000 ROUND TABLE

Key issues raised at the Round Table

The presentations and discussions at the Round Table confirmed that the complexity of the issues associated with the Year 2000 cannot be overestimated. Moreover, every senior political and business executive should have realised by now that the issues pose a critical management challenge and have potentially severe consequences for the ability of business entities to continue operating through the transition to the new millennium. The many challenges include the need to address resource constraints, the need to share information on readiness (not withstanding legal issues), the coordination of testing schemes within and across markets, the heightened disclosure of vital information, the development of market conventions to deal with transaction failures and contingency planning for infrastructure problems.

Discussions at the Round Table confirmed that the Year 2000 challenge continues to require the unwavering attention of senior executives in institutions throughout the world. Organisations need to ensure that appropriate programmes have been established to address all the various readiness issues that can be expected to affect their business. The resource constraints (financial, human and technological) and the amount of time needed to remediate and test internal systems are compounded by the need to evaluate readiness and arrange for testing with counterparties and customers, payment, clearance and settlement systems, and various trading and information systems.

It is obvious that no individual IT user, individual institution, sector, market, or country is immune to the difficult issues presented by the Year 2000 problem. Even if an institution has verified and tested all its internally developed systems and applications, it will be affected by: the state of readiness of its vendors and third-party service providers; the public utilities upon which it relies, particularly the telecommunications and electricity suppliers; the infrastructures that it relies upon for its trading, payment and external information needs; and the counterparties and customers upon which its business viability rests. Moreover, the globalisation of financial and economic activity and the widespread use of information and telecommunications technology throughout the world has created various international interconnections and global interdependencies which add greatly to the complexity of the challenge. . . .

Testing for Year 2000 readiness may be the most critical and complex issue facing the financial industry in its effort to ensure that the various interrelated systems continue to function through the transition to 2000. Because widespread testing has not yet begun, the degree of uncertainty regarding the scale of the problems that will arise and the remediation work that remains to be accomplished is considerable. Further, the four sponsors urge market participants to explore avenues that will serve to enhance the transparency of testing results for the benefit of the remediation efforts of the industry at large. . . .

The significant dependence of most organisations on external product and service providers is another concern. The potential effects of a failing of the telecommunications or electric power infrastructure would have far-reaching consequences for global business. The sponsoring organisations agree that the highest possible priority should be given to Year 2000 preparations by telecommunications and electricity providers in each national jurisdiction because the failure of these organisations to prepare adequately and share information on their plans in order to promote effective testing could lead to serious disruptions in the world's financial markets. . . .

In the financial industry, in particular, it would be useful if conventions could be developed for the resolution of transaction failures, and contingency measures are considered for the potential failure of key parts of the financial market infrastructure. Further, it is recognised that national payment systems need to coordinate testing schedules in order to provide opportunities for end-to-end testing on a domestic and international basis. The Round Table sponsors welcome and support the initiatives taken by various industry groupings in this respect.

Link: 

http://www.bis.org/wnew.htm

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