InformationWeek
Defining The Business Value Of Technology
May 10, 1999
Financial Services:Swift Action Now Means No Panic Later
Financial firms try to speed up Y2K slowpokes and ease public concerns
By Bruce Caldwell
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he financial services sector appears to be the most advanced in terms of readiness for 2000. Just a small percentage of companies are behind schedule. But as companies scramble to wrap up their Y2K projects, there's still one tough task to tackle: reassuring the general public.At a recent summit of financial institutions and federal regulators on year 2000 contingency planning and customer awareness, John D. Hawke, comptroller of the currency for the U.S. government, warned that public opinion polls have found concern over banks' ability to accurately track funds, clear checks, and provide access to cash next year. The belief that people will panic and withdraw a lot of money from their accounts before year's end is pervasive: The Federal Reserve is making an additional $50 billion in cash available to banks to avoid a shortage of funds spurred by public fears.
The 240 respondents to InformationWeek Research's survey have greater confidence, both inside and outside the financial sector. IT executives within the financial sector rated their confidence level at 8.5 on a scale of 10, while those from other industries rated their confidence in the sector at 8.4.
Notably, no other industry's Y2K projects have been as open to public scrutiny. Federal regulators have routinely dispatched Y2K examiners to banks and other financial services firms, cracked down where necessary, and reported their findings to Congress. The Securities and Exchange Commission has required extensive year 2000 reports from the companies it regulates and has posted the reports on its Web site.
The Securities Industry Association's membership, meanwhile, has successfully completed exhaustive industrywide tests of simulated transactions that begin in late December 1999 and end in early January 2000. Only 0.02% of the test transactions experienced glitches. As part of the SIA effort, the National Association of Securities Dealers, which operates the Nasdaq market, successfully completed tests with 144 firms that interface with its systems, says Gregor Bailar, executive VP and CIO at the NASD, which spent $55 million to remediate 11 million lines of code.
But there are still areas of concern. The most recent on-site Y2K examinations made by the Office of the Comptroller of the Currency found that while more than 95% of the national banks examined were making satisfactory progress, 4% needed improvement and less than 1% were unsatisfactory. Setbacks have occurred for several reasons, Hawke notes. In some instances, more testing was needed than was anticipated. In others, institutions expanded their definition of vital systems or ran into scheduling conflicts with the Y2K projects of service providers and software vendors.
However, the industry consensus is that any glitches will be small and manageable. "There are no horror stories out there that would give us concern," says Willie Kennedy, senior project manager for millennium planning and conversion at Key Services Corp., the IT unit of bank holding company Key Corp. He should know: Kennedy's been privy to details of Y2K projects at 40 banks that regularly meet under the auspices of the Bank Administration Institute.
Financial services companies on track with their Y2K projects are racing to finish last-minute details. Nasdaq, for example, still has some replacement systems to implement, says CIO Bailar. Systems integration with the American Stock Exchange, which merged with Nasdaq, must be completed by June or July to leave time for stress testing before a freeze on new IT work goes into effect and lasts until mid-January. NASD is still honing its contingency plans. It has developed more than 50 scenarios of potential year 2000 problems, including eight industrywide "events," about 30 enterprisewide events, and a growing list of local events, says Bailar.
At Key Corp., all vital systems and the majority of all applications were remediated and implemented at the end of last month, Kennedy says. But the company still needs to upgrade its PCs, voice systems, hardware, and security systems, he adds. During the next four months, Key Services will focus on contingency and event planning, which involves making sure the right personnel are on hand for important dates such as Jan. 1.
But contingency planning involves more than preparing for a handful of dates when glitches might occur. Business and IT contingencies are necessary, and problems on both sides could arise any time, even beyond Jan. 1, 2000. "I'd look to the first quarter of 2000 for the majority of any problems," says Jim Devlin, VP and director of the year 2000 enterprise project office at Citibank, which is spending $650 million on its Y2K project. Travelers, which merged with Citibank last year to form Citigroup, is spending about $250 million.
Y2K glitches will continue throughout next year, Devlin predicts, because of quarterly and annual events such as financial reporting. Though he says glitches will be small and manageable, Citibank is taking no chances: It's preparing contingency plans to address about 30 high-level scenarios, such as the need for liquidity.
In the meantime, banks and federal regulators are gearing up to minimize public concern by providing the general public with checklists for how they can protect themselves in the event of problems, and by increasing the availability of information about Y2K readiness. After all, there's little point in winning the battle if the war can be lost over public relations.
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