Supervisory Cooperation on Year 2000 Cross-Border Issues

For some time, the Year 2000 issue has been perceived as a predominantly domestic issue rather than a cross-border one. Many people have taken the view that if every jurisdiction were to make adequate preparations with respect to its own infrastructure and institutions, the risk of serious disruptions would be significantly reduced, if not eliminated.

Therefore, while putting emphasis on the need for internal and external testing and paying increased attention to infrastructure (telecommunications, power, etc.), supervisors have focused primarily on their domestic markets in initial reviews of Year 2000 programmes.

During the last months, it has become obvious that global implications and cross- border aspects of the Year 2000 issue merit increased attention. Cross-border coordination will likely be more challenging for supervisory authorities, as special issues may arise when the systems involved are in different jurisdictions.

When addressing Year 2000 cross-border issues, bank supervisors have to consider:

• foreign activities of domestic banks, including the readiness of foreign markets and infrastructures, and
• domestic activities of foreign banks, including the quality of head office preparedness and the readiness of the local branch or subsidiary to conduct business, typically within the domestic market.

As a general rule, the Year 2000 compliance of a bank's information systems is probably best evaluated by the supervisors in whose jurisdiction the systems are located or managed. But this is not a principle easily applied since corporate structures and Year 2000 programs vary considerably and technology permits processing to occur almost anywhere without regard to national boundaries. In practice, cross-border banking establishments have many information systems, some of which are physically located in the host country, some centralised in the home country, and some located in third countries. Additionally, the management of these systems as well as programmes to address Year 2000 problems are likely to present very different degrees of decentralisation. Consequently, supervisory responsibilities will necessarily vary across countries and groups.