NO.019

EMBARGO – 1pm 15 April 1999

YEAR 2000 PREPAREDNESS IN THE AUSTRALIAN FINANCIAL SECTOR

In a statement made today on the Year 2000 computer date problem, the Treasurer

emphasised that the stability, integrity and efficiency of the financial system are

critical to the performance of the Australian economy. As such, the Year 2000 preparedness

of the financial sector is crucial for a smooth transition into the next millennium.

Against that background, he stated that “I have been advised that the Australian

banking and financial sector is well advanced in its Year 2000 preparedness, and is

internationally recognised as being at world’s best practice. I understand that

remediation and internal testing of critical systems has largely been completed, and that

the majority of financial institutions expect to complete external testing – the last

stage towards achieving Year 2000 compliance – by end-June 1999.” The Treasurer

also noted that the Australian Prudential Regulation Authority (APRA) is closely

monitoring financial institutions’ Year 2000 preparations.

Financial institutions have indicated to APRA that they are also carefully reviewing

their contingency plans to ensure the continuity of their services and businesses if there

were to be any problems as a result of the Year 2000 and that they expected this work to

be completed by end-June 1999.

The Treasurer has also been advised that testing is well advanced in the various

payments clearing systems, a key element of the financial system – the target date

for completion is end-June 1999. The Reserve Bank of Australia (RBA) is participating in

this testing and is closely monitoring the payments industry’s Year 2000

preparations. Contingency planning in the payments system is also well underway.

Around the century date change it is possible that people may increase their demand for

currency notes to tide them over this period. The RBA has already stated that it is taking

steps to supplement the significant buffer stocks of notes it usually holds. This is being

done by printing a quantity of notes in addition to its normal requirement for 1999, and

by stockpiling for possible use notes that in normal circumstances would be withdrawn on

quality grounds. The RBA is also liaising with financial institutions and armoured car

companies on distribution arrangements required to get additional notes into the hands of

the public.

The financial sector regulators have all put in place procedures to increase awareness

of the Year 2000 problem within their sectors and to monitor progress towards Year 2000

compliance. APRA and the Australian Financial Institutions Commission (AFIC) have

introduced detailed quarterly reporting procedures to assess progress and to ensure that

the issues are addressed at the board/senior management level within each financial

institution. The Australian Stock Exchange also requires all listed companies to make Year

2000 disclosure statements.

The financial sector regulators work closely with each other (through a Year 2000

coordinators group of the Council of Financial Regulators), with financial industry groups

and with international Year 2000 initiatives. This ensures that they keep in touch

with current and emerging issues and international best practice, and that relevant

information is shared throughout the sector.

One of the key considerations in planning for the Year 2000 is the high level of

interdependence between various sectors of the economy. For example, financial

institutions are reliant on the compliance of their counterparties and third-party service

providers, especially the utilities and the telecommunications industry. Given the

importance of this issue, the Treasurer welcomed today’s comments by the Minister for

Communications, Information Technology and the Arts on Year 2000 progress in the

telecommunications sector, and urged the State and Territory Governments to follow the

Commonwealth Government’s lead and make public statements about the Year 2000 progress of

utilities in their areas of responsibility.

The Treasurer supported the recent letters from APRA to the financial institutions it

regulates recommending that they disclose more fully their Year 2000 preparations. APRA

has encouraged institutions to use the Global 2000 Coordinating Group approach as the

minimum basis for disclosure. The Year 2000 Information Disclosure Act 1999 (the

“Good Samaritan” legislation) should also assist them in making these

disclosures. The Minister for Financial Services and Regulation will also be writing to

industry representatives in the financial sector in the near future along similar lines.

It is important that disclosure be as open as possible so that other financial

institutions, customers and the community in general are kept fully informed of Year 2000

progress. Such information also needs to be managed in a responsible manner. In this

regard, the Treasurer noted that the media has a key role in providing an objective and

balanced view on Year 2000 related issues – the community expects it to show a

responsible attitude by not broadcasting unsubstantiated commentary and rumours. The

Treasurer noted that these rumours could themselves have a greater impact on various

sectors of the economy (especially the financial sector) than the direct consequences of

Year 2000 related problems.

The Treasurer referred to the report of the Council of Financial Regulators entitled

“Year 2000 Preparations in the Australian Banking and Financial System”, which

was released on 28 January 1999. This provides detailed information on developments

in the financial sector and the preparations of the regulators themselves. The next

version of this report will be released in the next few weeks. The booklet, and contact

information, can be found at the web-sites of the various regulators:

Reserve Bank of Australia www.rba.gov.au

Australian Prudential Regulation Authority www.apra.gov.au

Australian Securities and Investments Commission www.asic.gov.au

Australian Financial Institutions Commission www.afic.com.au

15 April 1998

Contact: Ray Jones

02 6263 3849