To the Chief Executive Officers of All Bank Holding Companies, Edge Act Corporations, Branches and Agencies of Foreign Banks, and Others Concerned, in the Second Federal Reserve District:
The sharing of Year 2000 related information by financial institutions, software and hardware vendors, utilities, and service providers has been encouraged by banking regulators since outreach efforts began in 1996. The Y2K readiness of financial institutions and their key counterparties, customers, and other business partners is essential information to organizations in all sectors of global markets. This information provides a base for many organizations to develop an effective approach to addressing their own Year 2000 issues.
The Joint Year 2000 Council1 has released a new paper, Year 2000 Information Sharing and Disclosure. A copy of this paper is enclosed. The guidance provided in the paper makes a number of points pertinent to all organizations as they address the Y2K issue. Four points are particularly key in the paper:
Sharing information on Y2K will help assure that any problems are minimized. Regulators and most private sector organizations increasingly recognize that Y2K is not a competitive issue because financial institutions need counterparties and customers to conduct business normally. By sharing information and leveraging off the work of others to avoid redundant efforts, scarce resources can be deployed more effectively to address the problem to everyone's benefit.
Self disclosure is the most effective way of sharing information. Organizations that self disclose make it easier for others to conduct essential due diligence on Y2K preparations. While regulators and third-parties can play a constructive role in helping to verify that self disclosures are not misleading, their knowledge of the Y2K work done by an organization is not sufficient to permit certification of readiness or in-depth descriptions of Y2K work.
Common templates for self disclosure may facilitate information sharing. A number of groups like the Global 2000 Co-ordinating Group have developed useful templates that provide concise quantitative and qualitative summaries of organizational readiness. In particular, disclosures that provide a dynamic view of project plans over time and track progress against plan are particularly valuable. They help provide not only a sense of where the organization stands at a point in time but also where it plans to be at later dates and how it is progressing against plan. For organizations that may appear to be lagging, this type of dynamic disclosure is particularly important if it is able to show that preparations can reasonably be expected to be completed in a timely manner.
Organizations that do not self disclose will increasingly be viewed as "problems" by customers and counterparties. Many organizations are well advanced in the development of their contingency plans. These plans establish target dates where critical business decisions have to be made. The absence of information regarding the status of counterparties or customers is one of the triggers that may cause organizations to modify business relationships in order to protect themselves. Organizations providing the necessary information on their plans and progress are less likely to be affected. We believe that major financial organizations that provide significant services to others should strive to provide meaningful self disclosures by the end of the first quarter in order to minimize the risk of business relationship modifications that could be detrimental to both organizations and markets.
Guidance provided by the Joint Year 2000 Council is intended to assist global financial markets. While it does not supersede any guidance that may be provided by regulators focused on their specific markets, it is generally regarded as indicative of sound practices that should be considered in formulating sound Y2K programs.
Questions regarding this matter may be directed to Sarah Dahlgren or George R. Juncker, Vice Presidents, Bank Supervision Group, or to Ira Adler or Joseph Galati, Examining Officers, Advisory and Technical Services.
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
The Joint Year 2000 Council is composed of senior financial regulators from around the world and is sponsored by the Basle Committee on Banking Supervision, the Committee on Payment and Settlement Systems, the International Association of Insurance Supervisors, and the International Organization of Securities Commissions. In addition to promoting awareness of Year 2000 issues, fostering communication and cooperation among financial regulators on these issues, and serving as a bridge between the public sector and private sector groups working on Year 2000, it also provides guidance on sound practices in papers such as the one described here.