District Circular Letters

• District Circular Letters Index

July 13, 1998

BANKING SUPERVISION AND REGULATION:
YEAR 2000 SUPERVISORY REVIEW PLAN--
PHASE II (July 1998 - March 1999)

SERVICE PROVIDER AND SOFTWARE VENDOR
YEAR 2000 READINESS

To State Member Banks, Bank
Holding Companies, Edge Act Corporations,
U.S. Branches and Agencies of Foreign Banks,
and Others Concerned
in the Twelfth Federal Reserve District

Year 2000 Project Awareness--Phase II (SR 98-17 [SUP])

As part of the federal banking agencies' efforts to assess the Year 2000 compliance efforts of depository institutions, the Federal Financial Institutions Examination Council (FDIC) issued a Financial Institution Letter entitled "Year 2000 Project Awareness" in October 26, 1999. The Federal Reserve initiated a Phase I Year 2000 supervision program (SR 97-16, dated May 1997) calling for supervisory reviews of financial institutions' Year 2000 compliance efforts by June 1998.

The enclosed letter, SR 98-17 (SUP), summarizes the Federal Reserve's Supervisory Review Plan for assessing Year 2000 compliance efforts of financial institutions and certain service providers and software vendors during the second phase (Phase II) of our supervisory program, running from July 1998 through March 1999.

Phase II calls for examiners to focus attention on the specific efforts of financial institutions and service providers in the areas of testing, implementation, contingency planning and compliance with the key dates established by various FFIEC guidelines. Updated examination procedures focusing on these areas will be contained in an FFIEC Phase II Year 2000 Work Program that will be released in the near future.

Service Providers and Software Vendors--Year 2000 Review Report Distribution (SR 98-15 [SUP])

Many financial institutions use the services of information systems service providers and software vendors in operating critical business functions and, as a result, are relying on these entities to ensure that their products operate correctly after the century date change. In March 1998, the FFIEC banking agencies announced that they would begin distributing results of Year 2000 reviews of service providers and consenting software vendors to serviced financial institutions (SR 98-3). This information should facilitate efforts by serviced institutions to identify which, if any, of their service providers or software vendors are likely to experience difficulty supporting their mission-critical operations in the Year 2000. Financial institutions should use this information to encourage their service providers and software vendors to intensify efforts to assure Year 2000 preparedness on a timely basis and to prepare their own Year 2000 contingency plans.

These entities include sixteen Multiregional Data Processing Servicers (MDPS), eleven large software vendors that are reviewed under the Shared Application Software Review (SASR) program, and several hundred regional service providers and software vendors (also reviewed under the SASR program) that are reviewed by the agencies. Reserve Banks are responsible for distributing review findings and ratings of appropriate service providers and software vendors to serviced financial institutions subject to Federal Reserve supervisory authority. This enclosed letter, SR 98-15 (SUP), provides guidance on preparing Year 2000 review reports, conducting quarterly reviews, distributing review reports, and other issues related to the supervisory review program for service providers and software vendors.

For Additional Information

For additional information regarding the enclosed FFIEC guidances or Federal Reserve's Year 2000 bank supervision program, please contact Mr. Robert Johnson, Assistant Vice President, Banking Supervision and Regulation, at (213) 683-2738.

If you have questions about the Federal Reserve System's Century Date Change Project, please contact your local Business Development office, as listed below:

FEDERAL RESERVE BANK OF SAN FRANCISCO