To gather information on how U.S. regulators were addressing international Year 2000 risks, we reviewed guidance and other issuances and discussed international Year 2000 risks with representatives of the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC). We also interviewed officials from and reviewed documents of key international organizations that were established to address Year 2000 problems in global financial markets, including the Global 2000 Coordinating Group and the Joint Year 2000 Council. Large, Internationally Active U.S. Financial Institutions Were Assessing International Risks

Large, internationally active U.S. financial institutions, which account for most of the financial exposures and relationships with foreign financial institutions and markets, may be at risk if the foreign organizations are not ready for the Year 2000 date change. Further, they said that they are preparing plans to mitigate the risks their international activities pose to their operations, but that they generally did not anticipate Year 2000 problems in other countries to have a significant long-term impact on their business operations. The Year 2000 readiness of foreign organizations’ computer systems is important to these large U.S. financial institutions because they have substantial international financial exposures. At the large U.S. banks and securities firms we contacted, representatives of these institutions described (1) the progress they had made in readying their own systems to process Year 2000 dates and (2) the actions they had taken to assess their international exposures. One of the large U.S. securities firms we contacted issued a research report on Year 2000 readiness in January 1999. U.S. Banking and Securities Regulators Are Assessing International Year 2000 Risks

U.S. bank and securities regulators are assessing the international risks faced by the entities they oversee. Although these reports were technically just required to be filed by the securities firms’ broker-dealer affiliates subject to SEC regulation, SEC officials told us that the firms submitting these reports have generally provided information that addresses the global operations of their firms outside of the regulated U.S. entity, when relevant. Foreign Financial Institutions and Regulators We Visited Were Also Addressing the Year 2000 Problem

Like their counterparts in the United States, officials of the foreign financial institutions we visited said they were also working to ready their systems for the date change in 2000, although their progress generally lagged those of U.S. institutions. In the United States, bank regulators issued at least 11 statements to provide guidance for banks on a variety of topics to help them prepare for the Year 2000. The Joint Year 2000 Council is the other organization actively addressing international Year 2000 issues. Other areas that financial regulators and financial institutions said they are addressing that will require continued efforts include (1) developing mechanisms for coordinating between regulators and other organizations during the date change period, (2) promoting additional Year 2000 readiness disclosure by foreign organizations, and (3) developing strategies for communicating the readiness status of the financial sector to public. This lack of information contributed to uncertainty about the readiness status of these providers. Internationally, individual infrastructure sectors also have taken steps to address Year 2000 issues.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the international risks that the year 2000 computer problem poses to U.S. financial institutions, focusing on the extent to which: (1) large, internationally active U.S. financial institutions were addressing international year 2000 risks; (2) U.S. banking and securities regulators were overseeing these risks for the institutions they regulate; (3) large foreign financial institutions and their regulators are addressing the year 2000 risks; and (4) other issues may require attention before 2000 arrives.

What GAO Found

GAO noted that: (1) large U.S. financial institutions have financial exposures and relationships with international financial institutions and markets that may be at risk if these international organizations are not ready for the date change occurring on January 1, 2000; (2) however, the 7 large U.S. banks and securities firms GAO visited were taking actions to address these risks; (3) they had identified the organizations with which they had critical foreign business relationships, had assessed the year 2000 readiness status of these organizations, and were developing plans to mitigate the risks that would be posed by the lack of year 2000 readiness of one or more of these organizations; (4) they told GAO that they did not expect potential year 2000 disruptions to have much long-term effect on their global operations; (5) U.S. banking and securities regulators were also addressing the international year 2000 risks of the institutions they oversee; (6) banking regulators had issued guidance for banks on addressing international year 2000 risks and were assessing bank preparations for these risks during bank examinations; (7) securities regulators, although not directly responsible for securities firms' foreign activities, were assessing these firms' efforts to address international and other external year 2000 risks using information obtained through the regulated U.S. broker-dealer affiliate; (8) foreign financial institutions reportedly have lagged behind their U.S. counterparts in preparing for the year 2000 date change; (9) one of the major reasons cited for the lag was that these firms also had to make systems modifications to prepare for the introduction of a new European currency in January 1999; (10) officials from 4 of the 7 large foreign financial institutions GAO visited said they had scheduled completion of their preparations for year 2000 about 3 to 6 months after their U.S. counterparts, but they planned to complete their efforts by mid-1999 at the latest; (11) two international organizations created to assist international year 2000 efforts, the Global 2000 Coordinating Group and the Joint Year 2000 Council, were also playing a major role in assessing readiness and helping global financial market institutions and regulators address year 2000 issues; (12) promoting additional year 2000 readiness disclosure by foreign organizations was an issue for which regulators have taken steps to address; and (13) regulators acknowledged the need to continue developing strategies for communicating the readiness status of the financial sector to alleviate concerns among members of the public.