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[Federal Register: October 15, 1998 (Volume 63, Number 199)]

[Rules and Regulations]

[Page 55479-55486]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr15oc98-24]



 

[[Page 55479]]


 

_______________________________________________________________________


 

Part IV


 

Department of the Treasury

_______________________________________________________________________




 

Office of the Comptroller of the Currency




 

Office of Thrift Supervision




 

_______________________________________________________________________

Federal Reserve System

_______________________________________________________________________

Federal Deposit Insurance Corporation

_______________________________________________________________________




 

12 CFR Part 30, et al.




 

Interagency Guidelines Establishing Year 2000 Standards for Safety and

Soundness; Safety and Soundness Standards; Interim Rules



 

[[Page 55480]]




 

DEPARTMENT OF THE TREASURY


 

Office of the Comptroller of the Currency


 

12 CFR Part 30


 

[Docket No. 98-14]

RIN 1557-AB67


 

FEDERAL RESERVE SYSTEM


 

12 CFR Part 208


 

[Docket No. R-1017]


 

FEDERAL DEPOSIT INSURANCE CORPORATION


 

12 CFR Part 364


 

RIN 3064-AC18


 

DEPARTMENT OF THE TREASURY


 

Office of Thrift Supervision


 

12 CFR Part 570


 

[Docket No. 98-97]

RIN 1550-AB27


 

 

Interagency Guidelines Establishing Year 2000 Standards for

Safety and Soundness


 

AGENCIES: Office of the Comptroller of the Currency, Treasury; Board of

Governors of the Federal Reserve System; Federal Deposit Insurance

Corporation; and Office of Thrift Supervision, Treasury.


 

ACTION: Joint interim guidelines with request for comment.


 

-----------------------------------------------------------------------


 

SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board

of Governors of the Federal Reserve System (Board), the Federal Deposit

Insurance Corporation (FDIC), and the Office of Thrift Supervision

(OTS) (collectively, the Agencies) are issuing interim guidelines (the

Guidelines) establishing Year 2000 safety and soundness standards for

insured depository institutions pursuant to section 39 of the Federal

Deposit Insurance Act (FDI Act). Under the auspices of the Federal

Financial Institutions Examination Council (FFIEC), the Agencies have

previously issued eight guidance papers on important aspects of Year

2000 readiness. The Guidelines complement these eight guidance papers

by establishing minimum safety and soundness standards for achieving

Year 2000 readiness.


 

DATES: The Guidelines are effective October 15, 1998. Comments must be

received by December 14, 1998.


 

ADDRESSES: Comments should be directed to:

OCC: Office of the Comptroller of the Currency, Communications

Division, 250 E Street, SW, Washington, DC 20219, Attention: Docket No.

98-14. Comments will be available for public inspection and

photocopying at the same location. In addition, comments may be sent by

facsimile transmission to FAX number (202) 874-5274 or by Internet mail

to regs.comments@occ.treas.gov.

Board: Jennifer J. Johnson, Secretary, Board of Governors of the

Federal Reserve System, Docket No. R-1017, 20th Street and Constitution

Avenue, NW, Washington, DC 20551. Comments addressed to Ms. Johnson may

also be delivered to the Board's mail room between 8:45 a.m. and 5:15

p.m., and to the security control room outside of those hours. Both the

mail room and control room are accessible from the courtyard entrance

on 20th Street between Constitution Avenue and C Street, NW,

Washington, DC. Comments may be inspected in room MP-500 between 9:00

a.m. and 5:00 p.m., except as provided in Sec. 261.14 of the Board's

Rules Regarding Availability of Information, 12 CFR 261.14.

FDIC: Robert E. Feldman, Executive Secretary, Attention: Comments/

OES, Federal Deposit Insurance Corporation, 550 17th Street, NW,

Washington, DC 20429. Comments may be hand delivered to the guard

station at the rear of the 550 17th Street Building (located on F

Street), on business days between 7:00 a.m. and 5:00 p.m. (Fax number:

(202) 898-3838; Internet address: comments@fdic.gov). Comments may be

inspected and photocopied in the FDIC Public Information Center, Room

100, 801 17th Street, NW, Washington, DC, between 9:00 a.m. and 4:30

p.m. on business days.

OTS: Manager, Dissemination Branch, Records Management and

Information Policy, Office of Thrift Supervision, 1700 G Street, NW,

Washington, DC 20552, Attention Docket No. 98-97. These submissions may

be hand delivered to 1700 G Street, NW, Washington, DC, from 9:00 a.m.

to 5:00 p.m. on business days; sent by facsimile transmission to FAX

number (202) 906-7755, or may be sent by e-mail to:

public.info@ots.treas.gov. Those commenting by e-mail should include

their name and telephone number. Comments will be available for

inspection at 1700 G Street, NW, Washington, DC, from 9:00 a.m. until

4:00 p.m. on business days.


 

FOR FURTHER INFORMATION CONTACT: OCC: Mark L. O'Dell, Director, Year

2000 Bank Supervision Policy (202) 874-2340; Brian McCormally,

Assistant Director, Enforcement and Compliance (202) 874-4800; Ursula

Pfeil, Attorney, Legislative and Regulatory Activities (202) 874-5090;

or Stuart E. Feldstein, Assistant Director, Legislative and Regulatory

Activities (202) 874-5090.

Board: Angela Desmond, Special Counsel, Division of Banking

Supervision and Regulation (202) 452-3497; or Nancy Oakes, Senior

Attorney, Division of Banking Supervision and Regulation (202) 452-

2743. For the hearing impaired only, Telecommunication Device for Deaf

(TDD), Diane Jenkins (202) 452-3544, Board of Governors of the Federal

Reserve System, 20th and C Streets, NW, Washington DC 20551.

FDIC: Frank Hartigan, Year 2000 Project Manager, Division of

Supervision (202) 898-6867; Sandy Comenetz, Year 2000 Project Manager,

Legal Division (202) 898-3582; Richard Bogue, Counsel, Legal Division

(202) 898-3726; or Nancy Chase Miller, Counsel, Legal Division (202)

898-6533.

OTS: Dorothy Van Cleave, National Year 2000 Coordinator (202) 906-

7380; or Robert D. DeCuir, Senior Enforcement Attorney, Office of

Enforcement, Office of Chief Counsel (202) 906-7152.


 

SUPPLEMENTARY INFORMATION:


 

Background


 

The potential inability of computers to recognize correctly certain

dates in 1999 and on and after January 1, 2000, presents significant

and unprecedented enterprise-wide challenges for insured depository

institutions. Timely management response is critical in order for

insured depository institutions to identify problems and implement

effective remediation programs in the relatively short time remaining

until those dates occur. Under the auspices of the FFIEC, the Agencies

have issued eight guidance papers 1 on important aspects of

Year 2000 readiness. The Agencies are issuing the Guidelines, which are

distilled from the FFIEC guidance, to establish minimum safety and

soundness standards for achieving


 

[[Page 55481]]


 

Year 2000 readiness. The Guidelines do not replace or supplant the

FFIEC guidance, which will continue to apply to all entities regulated

or examined by the Agencies. Insured depository institutions also

should refer to the FFIEC guidance.

---------------------------------------------------------------------------


 

\1\ See Guidance Concerning Contingency Planning in Connection

with Year 2000 Readiness (May 13, 1998); Guidance on Year 2000

Customer Awareness Programs (May 13, 1998); Guidance Concerning

Testing for Year 2000 Readiness (April 10, 1998); Guidance

Concerning the Year 2000 Impact on Customers (March 17, 1998);

Guidance Concerning Institution Due Diligence in Connection with

Service Provider and Software Vendor Year 2000 Readiness (March 17,

1998); Safety and Soundness Guidelines Concerning the Year 2000

Business Risk (December 17, 1997); Year 2000 Project Management

Awareness (May 5, 1997); and The Effect of Year 2000 on Computer

Systems (June 1996) [collectively, the FFIEC guidance].

---------------------------------------------------------------------------


 

The Agencies are issuing the Guidelines pursuant to section 39 of

the FDI Act.2 Section 39 requires the Agencies to establish

operational and managerial standards for insured depository

institutions relating to, among other things, internal controls,

information systems, and internal audit systems. Section 39 also

authorizes the Agencies to prescribe operational and managerial

standards as they determine to be appropriate, and to require

institutions that fail to meet such standards to submit corrective

action plans.

---------------------------------------------------------------------------


 

\2\ Section 39 was added to the FDI Act by section 132 of the

Federal Deposit Insurance Corporation Improvement Act, Pub. L. 102-

242, 105 Stat. 2236, 2267-70 (December 19, 1991), and was

subsequently amended by section 318 of the Riegle Community

Development and Regulatory Improvement Act (CDRIA), Pub. L. 103-325,

108 Stat. 2160, 2223-24 (September 23, 1994).

---------------------------------------------------------------------------


 

Standards issued under section 39 may take the form of regulations

or guidelines. If an agency determines that an insured depository

institution fails to meet any standard established by regulation, then,

by the terms of the statute, the agency must require the institution to

submit an acceptable plan to achieve compliance with the standard. If

an agency determines that an insured depository institution fails to

meet any standard established by guideline, the agency may require the

institution to submit an acceptable compliance plan.

In 1995, the Agencies promulgated Interagency Guidelines

Establishing Standards for Safety and Soundness. 60 FR 35674 (July 10,

1995).3 Among other things, the 1995 guidelines provided

generally that an insured depository institution should have internal

controls and information systems that are appropriate to the size of

the institution and the nature, scope, and risk of its activities.

---------------------------------------------------------------------------


 

\3\ For a brief history of the Agencies' regulations and

guidelines implementing section 39, see 61 FR 43948 (Aug. 27, 1996)

(adopting final asset quality and earnings standards).

---------------------------------------------------------------------------


 

As the Agencies noted in adopting the 1995 safety and soundness

guidelines, their purpose in issuing standards as guidelines rather

than regulations is to retain the flexibility to determine whether to

require an insured depository institution to submit an acceptable

compliance plan or to pursue another course of supervisory action,

depending on the circumstances and severity of an institution's

noncompliance with one or more of the standards and the significance of

the particular standard at issue. See 60 FR at 35675.

The Guidelines adopted today establish standards for management and

boards of directors in developing and managing Year 2000 project plans,

validating remediation efforts, and planning for contingencies. In

appropriate circumstances, an agency will require an insured depository

institution that fails to comply with the Guidelines to prepare and

submit an acceptable compliance plan. The Agencies will use the rules

already in place under the 1995 safety and soundness guidelines to

require submission of compliance plans.

Under those rules, an insured depository institution must file a

compliance plan within 30 days of a request to do so from an

appropriate Federal banking agency, unless a different date is

prescribed by the agency. Within 30 days of the plan's receipt, the

agency must provide written notice to the insured depository

institution of whether the plan has been approved or if additional

information is required. An insured depository institution that fails

to submit an acceptable compliance plan within the time allowed or

fails in any material respect to implement an accepted compliance plan

will be subject to an agency order directing the institution to correct

the deficiency. The agency order is directly enforceable in Federal

district court; there is no requirement for a prior administrative

adjudication. See 12 U.S.C. 1818(i)(1). A violation of such an order

can serve as the basis for assessing civil money penalties. See 12

U.S.C. 1818(i)(2). Section 39 also describes certain supervisory

actions that an agency may take, and in certain cases must take, until

the deficiency is corrected.


 

Description of the Guidelines


 

The Guidelines describe certain essential steps that insured

depository institutions must take at the awareness, assessment,

renovation, validation (testing), and implementation phases of their

efforts to achieve Year 2000 readiness.4 The standards

contained in the Guidelines are based on--and are intended to be

consistent with--key principles contained in the FFIEC guidance.

---------------------------------------------------------------------------


 

\4\ The standards in the Guidelines are described in mandatory

terms in order to clarify the specific actions insured depository

institutions are expected to take to achieve Year 2000 readiness.

Nevertheless, as explained above, an Agency will decide whether to

require corrective action under section 39 for an institution's

noncompliance with these standards based on the circumstances of the

particular case.

---------------------------------------------------------------------------


 

The Guidelines define certain key terms to help clarify the types

of actions insured depository institutions are expected to undertake.

For example, the term ``mission-critical system'' is defined as ``an

application or system that is vital to the successful continuance of a

core business activity.'' An application that interfaces with a

designated mission-critical system and software products also may be

deemed a mission-critical system. The Guidelines also set forth

definitions for ``external system,'' ``internal system,'' ``external

third party supplier,'' ``other material third party,'' ``renovation,''

``business resumption contingency plan,'' ``remediation contingency

plan,'' and ``Year 2000 ready or readiness.'' The Agencies invite

comment on whether these terms are defined appropriately and whether

the Guidelines should include additional definitions.

The Guidelines specify that an insured depository institution's

initial review of mission-critical systems for Year 2000 readiness

should provide the basis for establishing priorities and deadlines and

for identifying and allocating available resources. The development and

implementation of a written due diligence process to monitor and

evaluate Year 2000 efforts by third party service providers and

software vendors is a critical component of an institution's initial

assessment. The Guidelines also require each insured depository

institution to develop and adopt a written project plan that addresses

each phase of the planning process. However, an insured depository

institution that has already developed and adopted an adequate project

plan, or other plans and procedures for achieving Year 2000 readiness,

need not prepare a new, separate project plan, or other plans and

procedures, just to satisfy the Guidelines. Plans and procedures

already adopted will suffice if they have been reviewed and deemed

acceptable by the appropriate Agency.

The Guidelines distinguish between renovation of systems controlled

by the insured depository institution (internal mission-critical

systems) and those controlled by a third party (external mission-

critical systems). Renovation of the internal mission-critical systems

must be done in sufficient time for testing to be substantially

complete by December 31, 1998. Insured depository institutions relying

on systems controlled and renovated by external third party suppliers

must determine


 

[[Page 55482]]


 

the ability of their service providers and software vendors to address

Year 2000 readiness for external mission-critical systems that are not

Year 2000 ready and to establish programs that allow testing and

remediation to be substantially completed by March 31, 1999. Insured

depository institutions must maintain written documentation of all

their communications with external third party suppliers regarding

their ability to renovate timely and effectively external mission-

critical systems that are not Year 2000 ready.

The Agencies consider testing to be a critical process in achieving

Year 2000 readiness. Failure of an insured depository institution to

perform adequate testing of mission-critical systems poses a risk to

the safe and sound operation of the institution. Failure to conduct

thorough testing may mask serious remediation problems. Failure to

properly identify or correct those problems could threaten the safety

and soundness of the institution. The Guidelines reflect the Agencies'

expectations on the timing and scope of required testing.

Another essential component of achieving Year 2000 readiness

addressed in the Guidelines is the development and implementation of

contingency plans for Year 2000 technology failures. The Guidelines

require an insured depository institution to design contingency plans

appropriate for the institution's technological systems and operating

structure that describe how the institution will mitigate the risks

associated with the failure of systems (the business resumption

contingency plan) and, as applicable, the failure to complete

renovation, testing, or implementation of its mission-critical systems

(the remediation contingency plan).

The Guidelines require insured depository institutions to implement

a due diligence process that identifies customers posing material Year

2000 risks, evaluates their Year 2000 preparedness, assesses their Year

2000 risk, and implements appropriate risk controls. Finally, the

Guidelines require that the board of directors and management must be

involved in all stages of the institution's efforts to achieve Year

2000 readiness. Management must provide to the board of directors

written status reports at least quarterly or as otherwise required to

keep the board of directors fully informed of the institution's Year

2000 efforts.

The Guidelines enable the Agencies to use the streamlined

compliance and enforcement mechanisms provided by section 39 to

address, in appropriate circumstances, Year 2000 readiness-related

safety and soundness concerns in insured depository institutions.

Section 39 remedies for insured depository institutions allow the

Agencies to move promptly in situations where immediate supervisory

action is essential for safety and soundness reasons.

Nonetheless, issuance of a safety and soundness order pursuant to

section 39 may not be the most appropriate remedy in every case where

an insured depository institution fails to comply with the Guidelines.

It is for this reason the Agencies have chosen to proceed by guideline,

within the meaning of section 39, rather than by regulation. As is the

case with respect to the Agencies' 1995 safety and soundness

guidelines, the Agencies also wish to preserve their discretion to

require supervisory actions different from those prescribed by section

39 with respect to the Guidelines if a different action is warranted by

the facts and circumstances of a particular situation.

The Guidelines do not limit the authority of an Agency to address

unsafe or unsound practices or conditions, violations of law, or other

practices, or to adopt appropriate remedies to achieve compliance with

the Guidelines, including requiring actions by dates that are different

from those set forth in the Guidelines. Actions under section 39 and

the Guidelines may be taken independently of, in conjunction with, or

in addition to, other appropriate enforcement actions.

The Agencies note that by law the Guidelines apply only to insured

depository institutions, not to all financial institutions supervised

by the Agencies, such as bank holding companies and U.S. offices of

foreign banking organizations. The Agencies will continue to examine

and inspect all financial institutions that they supervise for

compliance with the FFIEC guidance and may use their authority under

section 8 of the FDI Act if these institutions fail to comply with the

FFIEC guidance.


 

Request for Comment


 

The Agencies invite comment on all aspects of the Guidelines.


 

Effective Date


 

The Agencies find good cause for issuing the Guidelines effective

immediately, without prior notice and comment. Cf. 5 U.S.C. 553(b)(B)

(Administrative Procedure Act (APA) provision permitting an agency to

issue a rule without prior notice and comment when the agency for good

cause finds that notice and public procedure thereon are impracticable,

unnecessary, or contrary to the public interest); 5 U.S.C. 553(d) (good

cause exception to APA requirement for a 30 day delayed effective date

for final rule); 12 U.S.C. 4802(b)(1) (good cause exception to the

CDRIA requirement that the Federal banking agencies make rules

effective on the first day of a calendar quarter which begins on or

after the date on which the regulations are published in final form).

Making the Guidelines effective immediately is essential for ensuring

that the Agencies can properly and timely address the Year 2000

computer problem and that insured depository institutions can achieve

Year 2000 readiness in the relatively short time remaining before Year

2000 problems may begin to occur. The Agencies note that Congress has

recently underscored the importance and urgency of ensuring Year 2000

readiness in the financial services sector by passing the Examination

Parity and Year 2000 Readiness for Financial Institutions Act, Pub. L.

105-164, sec. 2, 112 Stat. 32, 32 (1998). Congress expressly found that

the Year 2000 computer problem poses a serious challenge to the

American economy, including the Nation's banking and financial services

industries, and that Federal financial regulatory agencies must have

sufficient examination authority to ensure that the safety and

soundness of the Nation's financial institutions will not be at risk.

Under these circumstances, the Agencies conclude that prior notice and

comment procedure is impracticable and contrary to the public interest.


 

Regulatory Flexibility Act Analysis


 

An initial regulatory flexibility analysis under the Regulatory

Flexibility Act (RFA) is required when an agency is required to publish

a general notice of proposed rulemaking. 5 U.S.C. 603. As noted above,

the Agencies have concluded, for good cause, that these Guidelines

should take immediate effect and, therefore, that a notice of proposed

rulemaking is not required. Accordingly, the Agencies have concluded

that the RFA does not require an initial regulatory flexibility

analysis of these Interim Guidelines.

Nonetheless, the Agencies have considered the likely impact of the

Guidelines on small entities and believe that the Guidelines do not

have a significant impact on a substantial number of small entities.

The potential inability of computers to correctly recognize certain

dates in 1999 and on and after January 1, 2000, compels all


 

[[Page 55483]]


 

institutions, including small institutions, to formulate appropriate

and timely management responses. The Guidelines provide a procedural

framework for formulating that response and reiterate the Agencies'

expectations, distilled from existing FFIEC guidance, regarding

appropriate business practices for achieving Year 2000 readiness. For

example, as indicated earlier in this preamble, plans and procedures

that institutions have already developed to achieve Year 2000 readiness

can satisfy the Guidelines if they have been reviewed and deemed

acceptable by the appropriate Agency.

The Agencies invite interested persons to submit comments on the

impact of the Guidelines on small entities for consideration in the

development of final Guidelines.


 

Paperwork Reduction Act


 

The Agencies invite comment on:

(1) Whether the collections of information contained in the

Guidelines are necessary for the proper performance of each Agency's

functions, including whether the information has practical utility;

(2) The accuracy of each Agency's estimate of the burden of the

information collections;

(3) Ways to enhance the quality, utility, and clarity of the

information to be collected;

(4) Ways to minimize the burden of the information collections on

respondents, including the use of automated collection techniques or

other forms of information technology; and

(5) Estimates of capital or start-up costs and costs of operation,

minutes, and purchase of services to provide information.

Respondents and Recordkeepers are not required to respond to this

collection of information unless it displays a currently valid Office

of Management and Budget (OMB) control number.

OCC: The collection of information requirements contained in the

Guidelines have been submitted to and approved by the OMB under its

emergency procedures and in accordance with the Paperwork Reduction Act

of 1995. 44 U.S.C. 3507. Since OMB clearance is for a 6-month period,

OCC will use any comments received to develop its renewed request.

Comments on the collections of information should be sent to the

Legislative and Regulatory Activities Division (1557-0212), Office of

the Comptroller of the Currency, 250 E Street, SW, Washington, DC

20219, with a copy to the Office of Management and Budget, Paperwork

Reduction Project (1557-0212), Washington, DC 20503.

In essence, the Guidelines incorporate the important elements of

the outstanding FFIEC guidance. In addition to the paperwork usually

maintained by an insured depository institution in the regular course

of business, the FFIEC guidance and the Guidelines impose some

additional paperwork burden. This burden is found in appendix B to part

30. The OCC needs this information to assess an insured depository

institution's compliance with the Guidelines set forth in appendix B.

The likely respondents are national banks.

Estimated number of respondents: 650.

Estimated average annual burden hours per respondent: 60 hours.

Estimated total annual recordkeeping burden: 39,255 hours.

Board: In accordance with section 3506 of the Paperwork Reduction

Act of 1995 (44 U.S.C. Ch. 35; 5 CFR 1320, appendix A.1), the Board

reviewed the Guidelines under the authority delegated to the Board by

the OMB. Comments on the collections of information should be sent to

Mary M. McLaughlin, Chief, Financial Reports Section, Division of

Research and Statistics, Mail Stop 97, Board of Governors of the

Federal Reserve System, Washington, DC 20551, with a copy to the Office

of Management and Budget, Paperwork Reduction Project (7100-0290),

Washington, DC 20503.

In essence, the Guidelines incorporate the important elements of

the outstanding FFIEC guidance. In addition to the paperwork usually

maintained by an insured depository institution in the regular course

of business, the FFIEC guidance and the Guidelines impose some

additional paperwork burden. This burden is found in appendix D-2 to

part 208. The Board needs this information to assess an insured

depository institution's compliance with the Guidelines set forth in

appendix D-2. The likely respondents are state member banks.

Estimated number of respondents: 994.

Estimated average annual burden hours per respondent: 20 hours.

Estimated total annual recordkeeping burden: 19,880.

FDIC: The collections of information contained in the Guidelines

have been submitted to and approved by the OMB under its emergency

procedures and in accordance with the Paperwork Reduction Act of 1995.

44 U.S.C. 3507. Since OMB clearance is for a 6-month period, the FDIC

will use any comments received to develop its renewed request. Comments

on the collections of information should be sent to Steven F. Hanft,

Office of the Executive Secretary, Federal Deposit Insurance

Corporation, 550 17th Street, NW, Washington, DC 20429, with a copy to

the Office of Management and Budget, Paperwork Reduction Project (3064-

0128 Year 2000), Washington, DC 20503.

In essence, the Guidelines incorporate the important elements of

the outstanding FFIEC guidance. In addition to the paperwork usually

maintained by an insured depository institution in the regular course

of business, the FFIEC guidance and the Guidelines impose some

additional paperwork burden. This burden is found in appendix B to part

364. The FDIC needs this information to assess an insured depository

institution's compliance with the Guidelines set forth in appendix B.

The likely respondents are insured nonmember banks.

Estimated number of respondents: 341.

Estimated average annual burden hours per respondent: 68 hours.

Estimated total annual recordkeeping burden: 23,188 hours.

OTS: The collection of information requirements contained in the

Guidelines have been submitted to and approved by the OMB under its

emergency procedures and in accordance with the Paperwork Reduction Act

of 1995. 44 U.S.C. 3507. Since OMB clearance is for a 6-month period,

the OTS will use any comments received to develop its renewed request.

Comments on the collection of information should be sent to the

Regulations and Legislation Division (1550-0051), Office of Thrift

Supervision, 1700 G Street, NW, Washington, DC 20552, with a copy to

the Office of Management and Budget, Paperwork Reduction Project (1550-

0051), Washington, DC 20503.

In essence, the Guidelines incorporate the important elements of

the outstanding FFIEC guidance. In addition to the paperwork usually

maintained by an insured depository institution in the regular course

of business, the FFIEC guidance and the Guidelines impose some

additional paperwork burden. This burden is found in appendix B to part

570. The OTS needs this information to assess an insured depository

institution's compliance with the Guidelines set forth in appendix B.

The likely respondents are savings associations.

Estimated number of respondents: 275.

Estimated average annual burden hours per respondent: 57 hours.

Estimated total annual recordkeeping burden: 15,675 hours.


 

[[Page 55484]]


 

Executive Order 12866


 

The OCC and OTS have determined that the Guidelines are not ``a

significant regulatory action'' under Executive Order 12866.


 

OCC and OTS: Unfunded Mandates Reform Act Analysis


 

The Unfunded Mandates Reform Act of 1995 (UMA), Pub. L. 104-4,

applies only when an agency is required to promulgate a general notice

of proposed rulemaking or a final rule for which a general notice of

proposed rulemaking was published. 2 U.S.C. 1532. As noted above, the

Agencies have concluded, for good cause, that a notice of proposed

rulemaking is not required. Accordingly, the Agencies have concluded

that the UMA does not require an unfunded mandates analysis of the

Guidelines.

Moreover, the Agencies believe that the Guidelines will not result

in expenditures by State, local, and tribal governments, or by the

private sector, of more than $100 million in any one year. Accordingly,

neither the OCC nor the OTS has prepared a budgetary impact statement

or specifically addressed the regulatory alternatives considered.


 

Text of Uniform Interim Guidelines (All Agencies)


 

The text of the agencies' uniform interim guidelines appears below:


 

Appendix ______ to Part______Interagency Guidelines Establishing

Year 2000 Standards for Safety and Soundness


 

Table of Contents


 

I. Introduction

A. Preservation of existing authority

B. Definitions

II. Year 2000 Standards for Safety and Soundness

A. Review of mission-critical systems for Year 2000 readiness

B. Renovation of internal mission-critical systems

C. Renovation of external mission-critical systems

D. Testing of mission-critical systems

E. Business resumption contingency planning

F. Remediation contingency planning

G. Customer risk

H. Involvement of the board of directors and management


 

I. Introduction


 

The Interagency Guidelines Establishing Year 2000 Standards for

Safety and Soundness (Guidelines) set forth safety and soundness

standards pursuant to section 39 of the Federal Deposit Insurance

Act (section 39) (12 U.S.C. 1831p-1) that are applicable to an

insured depository institution's efforts to achieve Year 2000

readiness. The Guidelines, which also interpret the general

standards in the Interagency Guidelines Establishing Standards for

Safety and Soundness adopted in 1995, apply to all insured

depository institutions.


 

A. Preservation of Existing Authority


 

Neither section 39 nor the Guidelines in any way limits the

authority of the Federal banking agencies to address unsafe or

unsound practices, violations of law, unsafe or unsound conditions,

or other practices. The Federal banking agencies, in their sole

discretion, may take appropriate actions so that insured depository

institutions will be able to successfully continue business

operations after January 1, 2000, including on a case-by-case basis

requiring actions by dates that are later than the key dates set

forth in the Guidelines. Action under section 39 and the Guidelines

may be taken independently of, in conjunction with, or in addition

to any other action, including enforcement action, available to the

Federal banking agencies.


 

B. Definitions


 

1. In general. For purposes of the Guidelines the following

definitions apply:

a. Business resumption contingency plan means a plan that

describes how mission-critical systems of the insured depository

institution will continue to operate in the event there are system

failures in processing, calculating, comparing, or sequencing date

or time data from, into, or between the 20th and 21st centuries; or

the years 1999 and 2000; or with regard to leap year calculations.

b. External system means a system the renovation of which is not

controlled by the insured depository institution, including systems

provided by service providers and any interfaces with external third

party suppliers and other material third parties.

c. External third party supplier means a service provider or

software vendor that supplies services or products to insured

depository institutions.

d. Internal system means a system the renovation of which is

controlled by the insured depository institution, including

software, operating systems, mainframe computers, personal

computers, readers/sorters, and proof machines. Internal system also

may include a system controlled by the insured depository

institution with embedded integrated circuits (e.g., heating and

cooling systems, vaults, communications, security systems, and

elevators).

e. Mission-critical system means an application or system that

is vital to the successful continuance of a core business activity.

An application or system may be mission-critical if it interfaces

with a designated mission-critical system. Software products also

may be mission-critical.

f. Other material third party means a third party, other than an

external third party supplier, to whom an insured depository

institution transmits data or from whom an insured depository

institution receives data, including business partners (e.g., credit

bureaus), other insured depository institutions, payment system

providers, clearinghouses, customers, and utilities.

g. Remediation contingency plan means a plan that describes how

the insured depository institution will mitigate the risks

associated with the failure to successfully complete renovation,

testing, or implementation of its mission-critical systems.

h. Renovation means code enhancements, hardware and software

upgrades, system replacements, and other associated changes that

ensure that the insured depository institution's mission-critical

systems and applications are Year 2000 ready.

i. Year 2000 ready or readiness with respect to a system or

application means the system or application accurately processes,

calculates, compares, or sequences date or time data from, into, or

between the 20th and 21st centuries; or the years 1999 and 2000; or

with regard to leap year calculations.


 

II. Year 2000 Standards for Safety and Soundness


 

A. Review of Mission-Critical Systems For Year 2000 Readiness.

Each insured depository institution shall in writing:

1. Identify all internal and external mission-critical systems

that are not Year 2000 ready;

2. Establish priorities for accomplishing work and allocating

resources to renovating internal mission-critical systems;

3. Identify the resource requirements and individuals assigned

to the Year 2000 project on internal mission-critical systems;

4. Establish reasonable deadlines for commencing and completing

the renovation of such internal mission-critical systems;

5. Develop and adopt a project plan that addresses the insured

depository institution's Year 2000 renovation, testing, contingency

planning, and management oversight process; and

6. Develop a due diligence process to monitor and evaluate the

efforts of external third party suppliers to achieve Year 2000

readiness.

B. Renovation of Internal Mission-Critical Systems. Each insured

depository institution shall commence renovation of all internal

mission-critical systems that are not Year 2000 ready in sufficient

time that testing of the renovation can be substantially completed

by December 31, 1998.

C. Renovation of External Mission-Critical Systems. Each insured

depository institution shall:

1. Determine the ability of external third party suppliers to

renovate external mission-critical systems that are not Year 2000

ready and to complete the renovation in sufficient time to

substantially complete testing by March 31, 1999;

2. Maintain written documentation of all its communications with

external third party suppliers regarding their ability to renovate

timely and effectively external mission-critical systems that are

not Year 2000 ready; and

3. Develop in writing an ongoing due diligence process to

monitor and evaluate the efforts of external third party suppliers

to achieve Year 2000 readiness, including:

a. monitoring the efforts of external third party suppliers to

achieve Year 2000 readiness on at least a quarterly basis and

documenting communications with these suppliers; and


 

[[Page 55485]]


 

b. reviewing the insured depository institution's contractual

arrangements with external third party suppliers to determine the

parties' rights and obligations to achieve Year 2000 readiness.

D. Testing of Mission-Critical Systems. Each insured depository

institution shall:

1. Develop and implement an effective written testing plan for

both internal and external systems. Such a plan shall include the

testing environment, testing methodology, testing schedules, budget

projections, participants to be involved in testing, and the

critical dates to be tested to achieve Year 2000 readiness;

2. Verify the adequacy of the testing process and validate the

results of the tests with the assistance of the project manager

responsible for Year 2000 readiness, the owner of the system tested,

and an objective independent party (such as an auditor, a

consultant, or a qualified individual from within or outside of the

insured depository institution who is independent of the process

under review);

3. Substantially complete testing of internal mission-critical

systems by December 31, 1998;

4. Commence testing of external mission-critical systems by

January 1, 1999;

5. Substantially complete testing of external mission-critical

systems by March 31, 1999;

6. Commence testing with other material third parties by March

31, 1999; and

7. Complete testing of all mission-critical systems by June 30,

1999.

E. Business Resumption Contingency Planning. Each insured

depository institution shall develop and implement an effective

written business resumption contingency plan that, at a minimum:

1. Defines scenarios for mission-critical systems failing to

achieve Year 2000 readiness;

2. Evaluates options and selects a reasonable contingency

strategy for those systems;

3. Provides for the periodic testing of the business resumption

contingency plan; and

4. Provides for independent testing of the business resumption

contingency plan by an objective independent party, such as an

auditor, consultant, or qualified individual from another area of

the insured depository institution who was not involved in the

formulation of the business resumption contingency plan.

F. Remediation Contingency Planning. Each insured depository

institution that has failed to successfully complete renovation,

testing, and implementation of a mission-critical system, or is in

the process of remediation and is not on schedule with the key dates

in section II.D, shall develop and implement an effective written

remediation contingency plan that, at a minimum:

1. Outlines the alternatives available if remediation efforts

are not successful, including the availability of alternative

external third party suppliers, and selects a reasonable contingency

strategy; and

2. Establishes trigger dates for activating the remediation

contingency plan, taking into account the time necessary to convert

to alternative external third party suppliers or to complete any

other selected strategy.

G. Customer Risk. Each insured depository institution shall

develop and implement a written due diligence process that:

1. Identifies customers, including fund providers, fund takers,

and capital market/asset management counterparties, that represent

material risk exposure to the institution;

2. Evaluates their Year 2000 preparedness;

3. Assesses their existing and potential Year 2000 risk to the

institution; and 4. Implements appropriate risk controls, including

controls for underwriting risk, to manage and mitigate their Year

2000 risk to the institution.

H. Involvement of the Board of Directors and Management.

1. During all stages of the renovation, testing, and contingency

planning process, the board of directors and management of each

insured depository institution shall:

a. be actively involved in managing efforts to plan, allocate

resources, and monitor progress towards attaining Year 2000

readiness;

b. oversee the efforts of the insured depository institution to

achieve Year 2000 readiness and allocate sufficient resources to

resolve problems relating to the institution's Year 2000 readiness;

and

c. evaluate the Year 2000 risk associated with any strategic

business initiatives contemplated by the insured depository

institution, including mergers and acquisitions, major systems

development, corporate alliances, and system interdependencies.

2. In addition, the board of directors, at a minimum, shall

require from management, and management shall provide to the board

of directors, written status reports, at least quarterly and as

otherwise appropriate to keep the directorate fully informed, of the

insured depository institution's efforts in achieving Year 2000

readiness. Such written status reports shall, at a minimum, include:

a. The overall progress of the insured depository institution's

efforts in achieving Year 2000 readiness;

b. The insured depository institution's interim progress in

renovating, validating, and contingency planning measured against

the insured depository institution's Year 2000 project plan as

adopted under section II.A.5. of appendix B;

c. The status of efforts by key external third party suppliers

and other material third parties in achieving Year 2000 readiness;

d. The results of the testing process;

e. The status of contingency planning efforts; and

f. The status of the ongoing assessment of customer risk.


 

[End of text of Uniform Interim Guidelines]


 

List of Subjects


 

12 CFR Part 30


 

Administrative practice and procedure, National banks, Reporting

and recordkeeping requirements, Safety and soundness.


 

12 CFR Part 208


 

Accounting, Agriculture, Banks, banking, Confidential business

information, Crime, Currency, Federal Reserve System, Mortgages,

Reporting and recordkeeping requirements, Safety and soundness,

Securities.


 

12 CFR Part 364


 

Administrative practice and procedure, Bank deposit insurance,

Banks, Banking, Reporting and recordkeeping requirements, Safety and

soundness.


 

12 CFR Part 570


 

Accounting, Administrative practice and procedures, Bank deposit

insurance, Holding companies, Reporting and recordkeeping requirements,

Savings associations, Safety and soundness.

Adoption of Uniform Interagency Guidelines. The agency specific

adoptions of the uniform interagency guidelines, which appear at the

end of the common preamble, are set forth below.


 

Office of the Comptroller of the Currency


 

12 CFR Chapter I


 

Authority and Issuance


 

For the reasons set forth in the common preamble, part 30 of

chapter I of title 12 of the Code of Federal Regulations is amended as

follows:


 

PART 30--SAFETY AND SOUNDNESS STANDARDS


 

1. The authority citation for part 30 continues to read as follows:


 

Authority: 12 U.S.C. 93a, 1831p-1.


 

2. A new appendix B is added to part 30 to read as set forth at the

end of the common preamble:


 

Appendix B to Part 30--Interagency Guidelines Establishing Year

2000 Standards for Safety and Soundness


 

Dated: September 21, 1998.

Julie L. Williams,

Acting Comptroller of the Currency.


 

Federal Reserve System


 

12 CFR Part 208


 

Authority and Issuance


 

For the reasons set forth in the common preamble, part 208 of

chapter II of title 12 of the Code of Federal Regulations is amended as

follows:


 

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL

RESERVE SYSTEM (REGULATION H)


 

1. The authority citation for 12 CFR Part 208 continues to read as

follows:


 

Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a,

371d, 461, 481-486,


 

[[Page 55486]]


 

601, 611, 1814, 1816, 1818, 1823(j), 1828(o), 1831o, 1831p-1, 1831r-

1, 1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, and 3906-3909, 15

U.S.C. 78b, 781(b), 781(g), 781(i), 78o-4(c)(5), 78q, 78q-1, and

78w; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.


 

Appendix D [Redesignated as Appendix D-1]


 

2. Appendix D to part 208 is redesignated as Appendix D-1.

3. A new appendix D-2 is added to part 208 to read as set forth at

the end of the common preamble:


 

Appendix D-2 to Part 208--Interagency Guidelines Establishing Year

2000 Standards for Safety and Soundness


 

By Order of the Board of Governors of the Federal Reserve

System, September 30, 1998.

Jennifer J. Johnson,

Secretary of the Board.


 

Federal Deposit Insurance Corporation


 

12 CFR Part 364


 

Authority and Issuance


 

For the reasons set forth in the common preamble, part 364 of

chapter III of title 12 of the Code of Federal Regulations is amended

as follows:


 

PART 364--STANDARDS FOR SAFETY AND SOUNDNESS


 

1. The authority citation for 12 CFR part 364 continues to read as

follows:


 

Authority: 12 U.S.C. 1819 (Tenth), 1831p-1.


 

2. A new Appendix B is added to part 364 to read as set forth at

the end of the common preamble:


 

Appendix B to Part 364--Interagency Guidelines Establishing Year

2000 Standards for Safety and Soundness


 

By Order of the Board of Directors,


 

Dated at Washington, DC, this 8th Day of October, 1998.


 

Federal Deposit Insurance Corporation.

James D. LaPierre,

Deputy Executive Secretary.


 

Office of Thrift Supervision


 

12 CFR Part 570


 

Authority and Issuance


 

For the reasons set forth in the common preamble, part 570 of

chapter V of title 12 of the Code of Federal Regulations is amended as

follows:


 

PART 570--SUBMISSION AND REVIEW OF SAFETY AND SOUNDNESS COMPLIANCE

PLANS AND ISSUANCE OF ORDERS TO CORRECT SAFETY AND SOUNDNESS

DEFICIENCIES


 

1. The authority citation for part 570 continues to read as

follows:


 

Authority: 12 U.S.C. 1831p-1.


 

2. A new appendix B is added to part 570 to read as set forth at

the end of the common preamble:


 

Appendix B to Part 570--Interagency Guidelines Establishing Year

2000 Standards for Safety and Soundness


 

Dated: September 29, 1998.

Ellen Seidman,

Director.

[FR Doc. 98-27672 Filed 10-14-98; 8:45 am]

BILLING CODES 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P