Global Round Table on the Year 2000
9 April 1998
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.
In 1997, the sponsoring organisations each took initiatives to raise awareness of the issues surrounding the century date change, enhance disclosure and prompt appropriate action within the financial industry. The sponsors' decision to organise the Round Table was motivated by their recognition of the seriousness of the challenges posed by the century date change in IT applications and of the potentially severe consequences in the financial markets associated with a lack of Year 2000 readiness. The discussions at the conference focused on the increasing challenges presented by the century date change, with specific emphasis on the identification of initiatives that need to be taken in order to ensure that financial market participants and the interconnected infrastructures around the world can continue to function without major disruptions during the transition to the new millennium.
The discussions at the Round Table confirmed that the Year 2000 issue needs to remain a top priority of senior management and emphasised that private and public sector bodies should coordinate their focus on a number of important issues and approaches. These include the continuing need to ensure strengthening and widening of external testing programmes, improving information sharing among market participants and their vendors and service providers, fostering increased disclosure by financial and non-financial corporations of their Year 2000 readiness and testing results, establishing market conventions and procedures for dealing with potential contingencies, and reinforcing the role of oversight bodies such as supervisors and auditors. The importance of thorough testing, both internally and with counterparties, was emphasised as the most effective way to ensure that problems are minimised.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Joint Year 2000 Council
While the sponsoring organisations can raise awareness of the Year 2000 issue, only the private sector can assure that applications are ready and thoroughly tested internally and externally and on an international basis. To this end, several private sector initiatives fostering international coordination and cooperation were identified during the forum. To maintain a high level of attention within the supervisory community and to support and encourage these private sector efforts, the sponsoring organisations are forming a Joint Year 2000 Council comprised of senior members of each committee.
Attached to this communiqué are further details on the discussions and conclusions of the Round Table. The BIS Web site (www.bis.org) contains further information on the Round Table and will be used to provide ongoing information on the activities of the sponsoring organisations and of the Joint Year 2000 Council.
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.
Particular areas requiring further attention
The discussions at the Round Table emphasised that while only the private sector can solve Year 2000 problems, public sector coordination is necessary to facilitate domestic and global activities. Such coordination is particularly helpful in designing external testing programmes, improving information sharing among market participants and their vendors and service providers, fostering increased disclosure by financial and non-financial corporations of their Year 2000 readiness and testing results, establishing market conventions and procedures for dealing with potential contingencies, and reinforcing the role of oversight bodies such as supervisors and auditors.
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.
Given the degree of interconnection between market participants and the fact that internal remediation programmes and testing efforts will require continuous reassessment and adaptation, organisations should maintain an open dialogue with their customers, counterparties and creditors in order that all interested market participants are able to make informed business decisions. Furthermore, it is essential that organisations consider the likely effects of the century date change on their customers and counterparties when evaluating future business transactions with these entities. In order to achieve a greater degree of market transparency, the sponsoring organisations believe that all possible efforts should be made to remove legal impediments to the sharing of critical information on Year 2000 readiness.
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.
With respect to the role of oversight bodies, the sponsoring organisations consider it very important that financial market supervisors worldwide implement a strategy that enables them to assess the Year 2000 readiness of the organisations and market infrastructures they supervise in order to make certain that the risks related to the century date change are identified and appropriately managed in their jurisdiction. When Year 2000 remediation and testing programmes of individual financial organisations or infrastructure operators are deemed inadequate, supervisors will need to take prompt, meaningful action. Further, it is essential that internal and external auditors understand how an organisation's programmes for remediation and testing are likely to effect their going concern status. It is also necessary for auditors to ensure that the information used to compile client financial statements has not been compromised by system errors related to the date change.
Another important issue is the extent to which market participants and regulators can rely on certifications of Year 2000 readiness. The sponsoring organisations believe that financial institutions must understand that an issuance of a certification does not guarantee a product will perform as expected. While vendors have an obligation to let clients know when they have renovated and tested their products, users need to test that product within their environment to ensure that it performs properly as a component of their system. As such, attempts to obtain legally binding certifications of compliance are likely to needlessly complicate the important work that must be completed in the period prior to 1st January 2000. Additionally, market participants must not adopt a false sense of security but recognise the limits of any statement on readiness and that they need to perform their own due diligence.
Follow-up to the Round Table
The private sector, both in a domestic context and internationally, appears committed to move ahead on a variety of fronts, including the further development of mechanisms to share information relating to Year 2000 issues, an effort to set minimum best practices for programmes designed to achieve readiness, and the support of rigorous internal and external testing. Although competitive pressures may arise from the markets' assessment of the readiness of individual institutions, there is likely to be scope for institutions, individually or through industry associations, to cooperate to ensure that the time remaining before the new millennium is used to the mutual benefit of all organisations. 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.
The sponsoring organisations intend to remain pro-active and continue to pay particular attention to Year 2000 issues and to the way in which individual firms, market infrastructures and industry associations in their respective areas of competence implement programmes and testing schemes aimed at ensuring Year 2000 compliance. In the case of the Basle Committee, it may be decided in the future to publish, if needed, more guidance on specific issues, such as the cross-border aspects of the Year 2000 problem and the management of external dependencies. The CPSS will maintain and expand the special section on the BIS Web site (www.bis.org) that provides information on the testing plans and readiness status of payment and settlement systems worldwide. Likewise, IOSCO will continue to update the special Year 2000 section on IOSCO's Web site (www.iosco.org), including information on the testing and readiness status of the securities industry and markets worldwide. The IAIS will continue to work with its members to urge insurance companies to implement detailed action plans to resolve the Year 2000 problems associated with their business activities.
Where appropriate, the four sponsors plan to take further joint action to promote the Year 2000 readiness of the global financial industry. They will cooperate with regional efforts to promote the organisation of regional seminars on the Year 2000 topic in order to enhance worldwide awareness of the seriousness of the situation and to induce appropriate action with the aim of achieving Year 2000 readiness and contingency planning.
In order to share information on regulatory and supervisory strategies and approaches, discuss possible contingency measures, and establish a point of contact with national and international private sector initiatives, the sponsoring organisations have formed a Joint Year 2000 Council, composed of senior members of each committee with broad-based experience.
The BIS Web site contains further information on the Round Table and will be used to provide ongoing information on the activities of the sponsoring organisations and of the Joint Year 2000 Council. The Web site also carries details on the Year 2000 readiness and testing schedules of payment and settlement systems worldwide. A summary video recording of the proceedings will also be available and can be obtained (in the appropriate format for your region) from the BIS Publications Service.