District Circular Letters

July 20, 1999

BANKING SUPERVISION AND REGULATION:
PHASE III OF THE YEAR 2000 SUPERVISION PROGRAM
PREVENTION OF YEAR 2000-RELATED FRAUD

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

Phase III Year 2000 Supervision Program - Guidance on Ratings and Enforcement Actions

The Federal Reserve's Phase III supervision program is entering its final six months (see our letter of February 25, 1999, regarding SR 99-2 [SUP]). In light of the importance of identifying before the century date change those financial institutions whose mission-critical systems are not Year-2000 compliant, the enclosed regulatory letter, SR 99-20 (SUP), provides additional guidance with respect to ratings, and re-emphasizes previous guidelines concerning enforcement actions against institutions that have not met the milestone dates for Y2K compliance set by the Federal Financial Institutions Examination Council (FFIEC).

FFIEC Guidance Regarding Year 2000-Related Fraud Prevention

FFIEC has issued the enclosed guidance, "Year 2000-Related Fraud Prevention," encouraging financial institutions to 1) alert their customers about fraudulent schemes involving the century date change; and 2) mitigate their own risks by continuing to follow and, where necessary, enhance their internal and external control procedures. The guidance reminds financial institutions to take measures to protect against unauthorized access to computer codes and outlines other internal and external control procedures. Financial institutions should also review security procedures to ensure that they are adapted to meet the challenges presented by the century date change, including such areas as cash storage, automatic teller machine use, branch activity, and electronic transfers.

Enclosed with the guidance is a fraud advisory flyer providing examples of fraudulent Year 2000-related schemes and outlines steps that customers can take to minimize their risk of becoming victims of fraud. We encourage institutions to reproduce the flyer and distribute it to their customers.

For Additional Information

For additional information regarding these publications or the 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