[Federal Register: June 9, 1998 (Volume 63, Number 110)]
[Notices]
[Page 31468-31475]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jn98-82]
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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
Uniform Rating System for Information Technology
AGENCY: Federal Financial Institutions Examination Council.
ACTION: Notice and request for comment.
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SUMMARY: The Board of Governors of the Federal Reserve System (FRB),
the Federal Deposit Insurance Corporation (FDIC), the Office of the
Comptroller of the Currency (OCC), and the Office of Thrift Supervision
(OTS) (collectively referred to as the federal supervisory agencies),
under the auspices of the Federal Financial Institutions Examination
Council (FFIEC) request comment on proposed changes to the Uniform
Interagency Rating System for Data Processing Operations, commonly
referred to as the Information Systems rating system. The proposed
revisions change the name of the rating system to the Uniform Rating
System for Information Technology (URSIT) and reflect changes that have
occurred in the data processing services industry and in supervisory
policies and procedures since the rating system was first adopted in
1978. The proposed changes revise the numerical ratings to conform to
the language and tone of the Uniform Financial Institution Rating
System (UFIRS) rating definitions, commonly referred to as the CAMELS
rating system; reformat and clarify the component rating descriptions;
emphasize the quality of risk management processes in each of the
rating components; add two new component categories, Development and
Acquisition, and Support and Delivery as replacements for Systems
Development and Programming, and Operations; and explicitly identify
the risk types that are considered in assigning component ratings.
After reviewing public comments, the FFIEC intends to make appropriate
additional changes to the revised URSIT, if necessary, and adopt a
final information technology rating system.
The term financial institution refers to those FDIC insured
depository institutions whose primary Federal supervisory agency is
represented on the FFIEC, Bank Holding Companies, Branches and Agencies
of Foreign Banking Organizations, and Thrifts. The term ``service
provider'' refers to organizations that provide data processing
services to financial institutions. Uninsured trust companies that are
chartered by the OCC, members of the Federal Reserve System, or
subsidiaries of registered bank holding companies or insured depository
institutions are also covered by this action.
DATES: Comments must be received by August 10, 1998.
ADDRESSES: Comments should be sent to Keith Todd, Acting Executive
Secretary, Federal Financial Institutions Examination Council, 2100
Pennsylvania Avenue, NW, Suite 200, Washington, DC 20037 (Fax number:
(202) 634-6556). Comments will be available for public inspection
during regular business hours at the above address. Appointments to
inspect comments are encouraged and can be arranged by calling the
FFIEC at (202) 634-6526.
FOR FURTHER INFORMATION CONTACT:
FRB: Charles Blaine Jones, Supervisory EDP Analyst, Specialized
Activities, (202) 452-3759, Division of Banking Supervision and
Regulation, Board of Governors of the Federal Reserve System, Mail Stop
182, 20th and C Streets, NW, Washington, DC 20551
FDIC: Stephen A. White, Review Examiner (Information Systems), (202)
898-6923, Division of Supervision, Federal Deposit Insurance
Corporation, Room F-6010, 550 17th Street, NW, Washington, DC 20429
OCC: Norine Richards, National Bank Examiner, (202) 874-4924, Bank
Technology Unit, Office of the Comptroller of the Currency, Mail Stop
7-9, 250 E Street, SW, Washington, D.C. 20219
OTS: Jennifer Dickerson, Program Manager, Information System
Examinations, Compliance Policy, (202) 906-5631, Office of Thrift
Supervision, 1700 G Street, NW, Washington, D.C. 20552
SUPPLEMENTARY INFORMATION:
Background Information
The Uniform Interagency Rating System for Data Processing
Operations is an internal rating system used by federal and state
regulators to assess uniformly financial institution and service
provider risks introduced by information technology and for identifying
those institutions and service providers requiring special supervisory
attention. The current rating system was adopted in 1978 by the OCC,
OTS, FDIC and FRB, and is commonly referred to as the IS rating system.
Each financial institution or service provider is assigned a composite
rating based on an evaluation and rating of four essential components
of an institution's information technology. These components address
the following: the adequacy of the information technology audit
function; the capability of information technology management; the
adequacy of systems development and programming, and the quality,
reliability, availability and integrity of information technology
operations. Both the composite and component ratings are assigned on a
``1'' to ``5'' numerical scale. A ``1'' indicates the strongest
performance and management practices, and the least degree of
supervisory concern, while a ``5'' indicates the weakest performance
and management practices and, therefore, the highest degree of
supervisory concern.
The composite rating reflects the overall condition of an
institution's or service provider's information technology function.
The composite ratings are used by the federal and state supervisory
agencies to monitor aggregate trends in the overall administration of
information technology.
The IS rating system has proven to be an effective means for the
federal and state supervisory agencies to determine the condition of an
institution's or service provider's information technology function. A
number of changes, however, have occurred in information technology and
in supervisory policies and procedures since the rating system was
first adopted. The FFIEC's Task Force on Supervision has reviewed the
existing rating system in light of these industry trends. The Task
Force has concluded that the current rating system framework should be
modified to provide a more effective vehicle for summarizing
conclusions about the condition of an institution's or service
provider's information technology function. As a result, the FFIEC
proposes to retain the basic rating framework, and the revised rating
system will continue to assign a composite rating based on an
evaluation and rating of essential components of an institution's or
service provider's information technology function. However, the FFIEC
proposes certain enhancements to the rating system.
Discussion of Proposed Changes to the Rating System
1. Structure and Format
The FFIEC proposes to enhance and clarify the component rating
descriptions by reformatting each component into three distinct
sections. These sections are: (a) An introductory paragraph discussing
in general terms the areas to be considered when rating each component;
(b) a bullet-style listing of the specific evaluation factors
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to be considered when assigning the component rating; and, (c) a brief
qualitative description of the five rating grades that can be assigned
to a particular component.
2. Alignment of Composite and Component Ratings
The FFIEC proposes changes to revise the definitions of the
composite and component ratings to align the URSIT rating definitions
more closely with the language and tone of the UFIRS rating
definitions. For example, under the current rating system a composite
``3'' rated information technology function has performance that is
flawed to some degree and is considered to be of below average quality,
while under the UFIRS a composite ``3'' rated bank or service provider
exhibits some degree of supervisory concern due to a combination of
weaknesses that may range from moderate to severe. The proposed
revision brings the URSIT in line with the language and tone of the
UFIRS.
3. Component Reorganization
The current rating system has four components: (1) Audit; (2)
Management; (3) Systems Development and Programming; and (4)
Operations. The FFIEC is proposing to replace the current ``Systems
Development and Programming'' and ``Operations'' components with two
new component categories, ``Development and Acquisition'', and
``Support and Delivery''. The new components will address all areas
assessed in the current Systems Development and Programming and
Operations components. In addition, the new components will provide a
more effective framework for the risks encountered in distributed
processing environments and emerging technology.
4. Composite Rating Definitions
The FFIEC is proposing changes in the composite rating definitions
to parallel the changes in the component rating descriptions. Under the
FFIEC's proposal, the revised composite rating definitions would
contain an explicit reference to the quality of overall risk management
practices. The basic context of the existing composite rating
definitions is being retained. The composite rating would continue to
be based on a careful evaluation of an institution's or service
provider's ability to monitor, manage, develop, acquire, support and
deliver information technology services.
5. Risk Management
The FFIEC is proposing that the revised rating system emphasize
risk management processes. Changes in information technology have
broadened the range of products and services offered. These trends
reinforce the importance of institutions having sound risk management
processes. Accordingly, the revised rating system would contain
language in each of the components emphasizing the consideration of
processes to identify, measure, monitor, and control risks.
Request for Comments
The FFIEC requests comment on the proposed revisions to the URSIT
(``the proposal''). In particular, the FFIEC invites comments on the
following questions:
1. Does the proposal capture the essential risk areas of
information technology?
2. Does the proposal adequately address distributed processing
environments, as well as centralized processing environments?
3. Does the proposal adequately address risks to financial
institutions that process their data in-house as well as to data
processing service providers?
4. Are the definitions for the individual components and the
composite numerical ratings in the proposal consistent with the
language and tone of the UFIRS definitions?
5. Are there any components which should be added to or deleted
from the proposal?
6. Given the trend toward the integration of safety and soundness
and information technology examination functions by the federal
supervisory agencies, does a separate rating system for information
technology continue to be useful?
Text of the Revised Uniform Rating System for Information
Technology
Uniform Rating System for Information Technology
Introduction
The quality, reliability, and integrity of a financial
institution's or service provider's information technology (IT) affect
all aspects of its performance. An assessment of the technology risk
management framework is necessary whether or not the institution itself
or a third-party service provider manages these operations. The Uniform
Rating System for Information Technology (URSIT) is an internal rating
system used by federal and state regulators to uniformly assess
financial institution and service provider risks introduced by IT. It
also allows the regulators to identify those insured institutions and
service providers whose information technology risk exposure requires
special supervisory attention. The rating system includes component and
composite rating descriptions and the explicit identification of risks
and assessment factors that might be considered in assigning component
ratings. Additionally, information technology can affect the risks
associated with financial institutions. For each IT rating component
the effect on credit, operational, market, reputation, strategic, and
compliance risks should be considered.
The purpose of the rating system is to identify those entities
whose risk exposure requires special supervisory attention. This rating
system assists examiners in making an assessment of risk and compiling
examination findings. However, the rating system does not drive the
scope of an examination. Examiners should use the rating system to help
evaluate the entity's overall risk exposure, and determine the degree
of supervisory attention believed necessary to ensure that weaknesses
are addressed and that risk is properly managed.
Overview
The URSIT is based on a risk evaluation of four critical
components: Audit, Management, Development and Acquisition, and Support
and Delivery (AMDS). These components, when combined, are used to
assess the overall performance of IT within an organization. Examiners
evaluate the functions identified within each component to assess the
institution's ability to identify, measure, monitor and control
information technology risks. Each organization examined for IT is
assigned a summary or composite rating based on the overall results of
the evaluation. The IT composite rating and each component rating are
based on a scale of ``1'' through ``5'' in ascending order of
supervisory concern; ``1'' representing the highest rating and least
degree of concern, and ``5'' representing the lowest rating and highest
degree of concern.
The first step in developing an IT composite rating for an
organization is the assignment of a performance rating to the
individual AMDS components. The evaluation of each of these components,
their interrelationships, and relative importance is the basis for the
composite rating. The composite rating is derived by making a
qualitative summarization of all of the AMDS components. A direct
relationship exists between the composite rating and the individual
AMDS component
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performance ratings. However, the composite rating is not an arithmetic
average of the individual components. An arithmetic approach does not
reflect the actual condition of IT when using a risk-focused approach.
A poor rating in one component may heavily influence the overall
composite rating for an institution. For example, if the audit function
is viewed as inadequate, the overall integrity of the IT systems is not
readily verifiable. Thus, a composite rating of less than satisfactory
(``3''-``5'') would normally be appropriate.
A principal purpose of the composite rating is to identify those
financial institutions and service providers that pose an inordinate
amount of information technology risk and merit special supervisory
attention. Thus, individual risk exposures that more explicitly affect
the viability of the organization and/or its customers should be given
more weight in the composite rating.
The following two sections contain the URSIT composite rating
definitions, the assessment factors, and definitions for the four
component ratings. These assessment factors and definitions outline
various IT functions and controls that may be evaluated as part of the
examination.
Composite Ratings \1\
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\1\ The descriptive examples in the numeric composite rating
definitions are intended to provide guidance to examiners as they
evaluate the overall condition of Information Technology. Examiners
must use professional judgement when making this assessment and
assigning the numeric rating.
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Composite 1
Financial institutions and service providers rated composite ``1''
exhibit strong performance in every respect. Weaknesses in IT are minor
in nature and are easily corrected during the normal course of
business. Risk management processes provide a comprehensive program to
identify and monitor risk relative to the size, complexity and risk
profile of the entity. Strategic plans are well defined and fully
integrated throughout the organization. This allows management to
quickly adapt to changing market, business and technology needs of the
entity. Management identifies weaknesses promptly and takes appropriate
corrective action to resolve internal audit and regulatory concerns.
The financial condition of the service provider is strong and overall
performance shows no cause for supervisory concern.
Composite 2
Financial institutions and service providers with composite rating
of ``2'' exhibit safe and sound performance but may demonstrate modest
weaknesses in operating performance, monitoring, management processes
or system development. Generally, senior management corrects weaknesses
in the normal course of business. Risk management processes adequately
identify and monitor risk relative to the size, complexity and risk
profile of the entity. Strategic plans are defined but may require
clarification, better coordination or improved communication throughout
the organization. As a result, management anticipates, but responds
less quickly, to changes in market, business, and technological needs
of the entity. Management normally identifies weaknesses and takes
appropriate corrective action. However, greater reliance is placed on
audit and regulatory intervention to identify and resolve concerns. The
financial condition of the service provider is acceptable and while
internal control weaknesses may exist, there are no significant
supervisory concerns. As a result, supervisory action is limited.
Composite 3
Financial institutions and service providers rated composite ``3''
exhibit some degree of supervisory concern due to a combination of
weaknesses that may range from moderate to severe. If weaknesses
persist further deterioration in the condition and performance of the
institution or service provider is likely. Risk management processes
may not effectively identify risks, and may not be appropriate for the
size, complexity, or risk profile of the entity. Strategic plans are
vaguely defined and may not provide adequate direction for IT
initiatives. As a result, management often has difficulty responding to
changes in business, market, and technological needs of the entity.
Self-assessment practices are weak and are generally reactive to audit
and regulatory exceptions. Repeat concerns may exist indicating that
management may lack the ability or willingness to resolve concerns. The
financial condition of the service provider may be weak and/or negative
trends may be evident. While financial or operational failure is
unlikely, increased supervision is necessary. Formal or informal
supervisory action may be necessary to secure corrective action.
Composite 4
Financial institutions and service providers rated ``4'' operate in
an unsafe and unsound environment that may impair the future viability
of the entity.
Operating weaknesses are indicative of serious managerial
deficiencies. Risk management processes inadequately identify and
monitor risk, and practices are not appropriate given the size,
complexity, and risk profile of the entity. Strategic plans are poorly
defined and not coordinated or communicated throughout the
organization. As a result, management and the board are not committed
to, or may be incapable of insuring that technological needs are met.
Management does not perform self-assessments and demonstrates an
inability or willingness to correct audit and regulatory concerns. The
financial condition of the service provider is severely impaired and/or
deteriorating. Failure of the financial institution or service provider
may be likely unless IT problems are remedied. Close supervisory
attention is necessary and, in most cases, formal enforcement action is
warranted.
Composite 5
Financial institutions and service providers with a composite
rating ``5'' exhibit critically deficient operating performance and are
in need of immediate remedial action. Operational problems and serious
weaknesses may be apparent throughout the organization. Risk management
processes are severely deficient and provide management little or no
perception of risk relative to the size, complexity, and risk profile
of the entity. Strategic plans do not exist or are ineffective, and
management and the board provide little or no direction for IT
initiatives. As a result, management is unaware of, or inattentive to
technological needs of the entity. Management is incapable of
identifying and correcting audit and regulatory concerns. The financial
condition of the service provider is poor and failure is highly
probable due to poor operating performance or financial instability.
Formal enforcement action and ongoing supervision is required.
Component Ratings \2\
Audit
Financial institutions and service providers are expected to
provide independent assessments of their exposure to risks and the
quality of
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internal controls associated with the implementation and use of
information technology.\3\ Audit practices should address the IT risk
exposures throughout the institution and its service provider(s) in the
areas of user and data center operations, client/server architecture,
local and wide area networks, telecommunications, information security,
electronic data interchange, systems development, and contingency
planning. This rating should reflect the adequacy of the organizations
overall IT audit program, including the internal and external auditor's
abilities to detect and report significant risks to management and the
board of directors on a timely basis. It should also reflect the
internal and external auditor's capability to promote a safe, sound,
and effective operation.
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\2\ The descriptive examples in the numeric component rating
definitions are intended to provide guidance to examiners as they
evaluate the individual components. Examiners must use professional
judgement when assessing a component area and assigning a numeric
rating value as it is likely that examiners will encounter
conditions that correspond to descriptive examples in two or more
numeric rating value definitions.
\3\ Financial institutions that outsource their data processing
operations should obtain copies of internal audit reports, SAS 70
reviews, and/or regulatory examination reports of their service
providers.
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The performance of audit is rated based upon an assessment of:
The level of independence maintained by audit and the
quality of the oversight and support provided by the board of directors
and management.
The adequacy of audit's risk analysis methodology used to
prioritize the allocation of audit resources and formulate the audit
schedule.
The scope, frequency, accuracy, and timeliness of internal
and external audit reports.
The extent of audit participation in application
development, acquisition, and testing, to ensure the effectiveness of
internal controls and audit trails.
The adequacy of the overall audit plan in providing
appropriate coverage of IT risks.
The auditors adherence to codes of ethics and professional
audit standards.
The qualifications of the auditor, staff succession, and
continued development through training and continuing education.
The existence of timely and formal follow-up and reporting
on management's resolution of identified problems or weaknesses.
The quality and effectiveness of internal and external
audit activity as it relates to IT controls.
Ratings
1. A rating of ``1'' indicates strong audit performance. Audit
independently identifies and reports weaknesses and risks to the board
of directors or its audit committee in a thorough and timely manner.
Outstanding audit issues are monitored until resolved. Audit risk
analysis ensures that audit plans address all significant IT
operations, procurement, and development activities with appropriate
scope and frequency. Audit work is performed in accordance with
professional auditing standards and report content is timely,
consistent, accurate, and complete. Because audit is strong, examiners
may place substantial reliance on audit results.
2. A rating of ``2'' indicates satisfactory audit performance.
Audit independently identifies and reports weaknesses and risks to the
board of directors or audit committee, but reports may be less timely.
Significant outstanding audit issues are monitored until resolved.
Audit risk analysis ensures that audit plans address all significant IT
operations, procurement, and development activities; however, minor
concerns may be noted with the scope or frequency. Audit work is
performed in accordance with professional auditing standards; however,
minor or infrequent problems may arise with the timeliness,
completeness and accuracy of reports. Because audit is satisfactory,
examiners may rely on audit results but because minor concerns exist,
examiners may need to expand verification procedures in certain
situations.
3. A rating of ``3'' indicates less than satisfactory audit
performance. Audit identifies and reports weaknesses; however,
independence may be compromised and reports presented to the board or
audit committee may be less than satisfactory in content and
timeliness. Outstanding audit issues may not be adequately monitored.
Audit risk analysis is less than satisfactory. As a result, the audit
plan may not provide sufficient audit scope or frequency for IT
operations, procurement, and development activities. Audit work is
generally performed in accordance with professional auditing standards;
however, occasional problems may be noted with the timeliness,
completeness and/or accuracy of reports. Because audit is less than
satisfactory, examiners must use caution if they rely on the audit
results.
4. A rating of ``4'' indicates deficient audit performance. Audit
may identify weaknesses and risks but it may not independently report
to the board or audit committee and report content may be inadequate.
Outstanding audit issues may not be adequately monitored and resolved.
Audit risk analysis is deficient and, as a result, the audit plan does
not provide adequate audit scope or frequency for IT operations,
procurement, and development activities. Audit work is often
inconsistent with professional auditing standards and the timeliness,
accuracy, and completeness of reports is unacceptable. Because audit is
deficient, examiners will not rely on audit results.
5. A rating of ``5'' indicates critically deficient audit
performance. If an audit function exists, it lacks sufficient
independence and, as a result, does not identify and report weaknesses
or risks to the board or audit committee. Outstanding audit issues are
not collected and no follow up is performed to monitor their
resolution. The audit risk analysis is critically deficient. As a
result, the audit plan is ineffective and provides inappropriate audit
scope and frequency for IT operations, procurement and development
activities. Audit work is not performed in accordance with professional
auditing standards and major deficiencies are noted regarding the
timeliness, accuracy, and completeness of audit reports. Because audit
is critically deficient examiners cannot rely on audit results.
Management
This rating reflects the abilities of the board and management as
they apply to all aspects of IT development and operations. Management
practices may need to address some or all of the following IT-related
risks: strategic planning, quality assurance, project management, risk
assessment, infrastructure and architecture, end-user computing,
contract administration of third party service providers, organization
and human resources, regulatory and legal compliance.
Sound management practices are demonstrated through active
oversight by the board of directors and management, competent
personnel, sound IT plans, adequate policies and standards, an
effective control environment, and risk monitoring. This rating should
reflect the board's and management's ability as it applies to all
aspects of IT operations.
For service providers of financial institutions, additional risk
factors must be weighed in the management component rating such as the
service provider's financial condition, continuing viability, service
level performance to financial institutions, and contractual terms and
plans.
The performance of management and the quality of risk management
are rated based upon an assessment of:
The level and quality of oversight and support of the IT
activities by the board of directors and management.
The ability of management to plan for and initiate new
activities or products in response to information needs and to address
risks that may
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arise from changing business conditions.
The ability of management to provide management
information reports necessary for informed planning and decision making
in an effective and efficient manner.
The adequacy of, and conformance with, internal policies
and controls addressing the IT operations and risks of significant
activities.
The effectiveness of risk monitoring systems.
The timeliness of corrective action for reported and known
problems.
The level of awareness of, and compliance with laws and
regulations.
The level of planning for management succession.
The ability of management to monitor the services
delivered and to measure the organization's progress toward identified
goals in an effective and efficient manner.
The adequacy of contracts and management's ability to
monitor relationships with third-party servicers.
The adequacy of strategic planning and risk management
practices to identify, measure, monitor, and control risks, including
management's ability to perform self-assessments.
The ability of management to identify, measure, monitor,
and control risks and to address emerging information technology needs
and solutions of the organization.
In addition to the above factors, the following are
included in the assessment of management at service providers:
The financial condition and ongoing viability of the
entity.
The impact of external and internal trends and other
factors on the ability of the entity to support continued servicing of
client financial institutions.
Ratings
1. A rating of ``1'' indicates strong performance by management and
the board. Effective risk management practices are in place to guide IT
activities, and risks are consistently and effectively identified,
measured, controlled, and monitored. Management immediately resolves
audit and regulatory concerns to ensure sound operations. Written
technology plans, policies and procedures, and standards are thorough
and properly reflect the complexity of the IT environment. They have
been formally adopted, communicated, and enforced throughout the
organization. IT systems provide accurate, timely reports to
management. These reports serve as the basis of major decisions and as
an effective performance-monitoring tool. Outsourcing arrangements are
based on comprehensive planning; routine management supervision
sustains an appropriate level of control over vendor contracts,
performance, and services provided. Management and the board have
demonstrated the ability to promptly and successfully address existing
IT problems and potential risks.
2. A rating of ``2'' indicates satisfactory performance by
management and the board. Adequate risk management practices are in
place and guide IT activities. Significant IT risks are identified,
measured, monitored, and controlled, however, risk management processes
may be less structured or inconsistently applied and modest weaknesses
exist. Management routinely resolves audit and regulatory concerns to
ensure effective and sound operations, however, the implementation of
corrective actions may not always be in a timely manner. Technology
plans, policies and procedures, and standards are adequate and are
formally adopted. However, minor weaknesses may exist in management's
ability to communicate and enforce them throughout the organization. IT
systems provide quality reports to management which serve as a basis
for major decisions and a tool for performance planning and monitoring.
Isolated or temporary problems with timeliness, accuracy or consistency
of reports may exist. Outsourcing arrangements are adequately planned
and controlled by management, and provide for a general understanding
of vendor contracts, performance standards and services provided.
Management and the board have demonstrated the ability to address
existing IT problems and risks successfully.
3. A rating of ``3'' indicates less than satisfactory performance
by management and the board. Risk management practices may be weak and
offer limited guidance for IT activities. Most IT risks are generally
identified, however, processes in place to measure and monitor risk may
be flawed. As a result, management's ability to control risk is less
than satisfactory. Regulatory and audit concerns may be addressed, but
time frames are often excessive and the corrective action taken may be
inappropriate. Management may be unwilling or incapable of addressing
deficiencies. Technology plans, policies and procedures, and standards
exist, but may be incomplete. They may not be formally adopted,
effectively communicated, or enforced throughout the organization. IT
systems provide requested reports to management, but periodic problems
with accuracy, consistency and timeliness lessen the reliability and
usefulness of reports and may adversely influence decision making and
performance monitoring. Outsourcing arrangements may be entered into
without thorough planning. Management may provide only cursory
supervision that limits their understanding of vendor contracts,
performance standards, and services provided. Management and the board
may not be capable of addressing existing IT problems and risks,
evidenced by untimely corrective actions and outstanding IT problems.
4. A rating of ``4'' indicates deficient performance by management
and the board. Risk management practices are inadequate and do not
provide sufficient guidance for IT activities. Critical IT risks are
not properly identified, and processes to measure and monitor risks are
deficient. As a result, management may not be aware of and is unable to
control risks. Management may be unwilling and/or incapable of
addressing audit and regulatory deficiencies in an effective and timely
manner. Technology plans, policies and procedures, and standards are
inadequate, have not been formally adopted, or effectively communicated
throughout the organization, and management does not effectively
enforce them. IT systems do not routinely provide management with
accurate, consistent, and reliable reports, thus contributing to
ineffective performance monitoring and/or flawed decision making.
Outsourcing arrangements may be entered into without planning or
analysis and management may provide little or no supervision of vendor
contracts, performance standards, or services provided. Management and
the board are unable to address existing IT problems and risks, as
evidenced by ineffective actions and longstanding IT weaknesses.
Strengthening of management and its processes is necessary.
5. A rating of ``5'' indicates critically deficient performance by
management and the board. Risk management practices are severely flawed
and provide inadequate guidance for IT activities. Critical IT risks
are not identified, and processes to measure and monitor risks do not
exist, or are not effective. Management's inability to control risk may
threaten the continued viability of the institution or service
provider. Management is unable and/or unwilling to correct audit and
regulatory identified deficiencies and immediate action by the board is
required to preserve the viability of the institution or service
provider. If they
[[Page 31473]]
exist, technology plans, policies and procedures, and standards are
critically deficient. Because of systemic problems, IT systems do not
produce management reports which are accurate, timely, or relevant.
Outsourcing arrangements may have been entered into without management
planning or analysis, resulting in significant losses to the financial
institution or inappropriate vendor services.
Development and Acquisition
Development and acquisition represent an organization's ability to
identify, acquire, install, and maintain appropriate information
technology solutions. Management practices may need to address all or
parts of the business process for implementing any kind of change to
the hardware or software used. These business processes include an
institution's or service provider's purchase of hardware or software,
development and programming performed by the institution or service
provider, purchase of services from independent vendors or affiliated
data centers, or a combination of those. The business process is
defined as all phases taken to implement a change including researching
alternatives available, choosing an appropriate option for the
organization as a whole, and converting to the new system, or
integrating the new system with existing systems. This rating reflects
the adequacy of the institution's systems development methodology and
related risk management practices for acquisition, and deployment of
information technology. This rating also reflects the board and
management's ability to enhance and replace information technology
prudently in a controlled environment.
For service providers of financial institutions, additional risks
to the serviced institution, such as the quality of software releases,
and the training provided to clients, must be weighed in the
Development and Acquisition component rating.
The performance of systems development and acquisition and related
risk management practice is rated based upon an assessment of:
The level and quality of oversight and support of systems
development and acquisition activities by senior management and the
board of directors.
The adequacy of the organizational and management
structures to establish accountability and responsibility for systems
initiatives.
The volume, nature, and extent of risk exposure to the
financial institution in the area of systems development and
acquisition.
The adequacy of the institution's Systems Development Life
Cycle (SDLC) and programming standards.
The quality of project management programs and practices
which are followed by developers, operators, executive management/
owners, independent vendors or affiliated servicers, and end-users.
The independence of the quality assurance function and the
adequacy of controls over program changes.
The quality and thoroughness of system documentation.
The integrity and security of the network, system, and
application software.
The development of information technology solutions that
meet the needs of end users.
The extent of end user involvement in the system
development process.
Ratings
1. A rating of ``1'' indicates strong systems development,
acquisition, implementation, and change management performance.
Management and the board routinely demonstrate successfully the ability
to identify and implement appropriate IT solutions while effectively
managing risk. Project management techniques and the SDLC are fully
effective and supported by written policies, procedures and project
controls that consistently result in timely and efficient project
completion. An independent quality assurance function provides strong
controls over testing and program change management. Technology
solutions consistently meet end user needs. No significant weaknesses
or problems exist.
2. A rating of ``2'' indicates a satisfactory systems development,
acquisition, implementation, and change management performance.
Management and the board frequently demonstrate their ability to
identify and implement appropriate IT solutions while managing risk.
Project management and the SDLC are generally effective however,
weaknesses may exist that result in minor project delays or cost
overruns. An independent quality assurance function provides adequate
supervision of testing and program change management, but minor
weaknesses may exist. Technology solutions meet end user needs.
However, minor enhancements may be necessary to meet original user
expectations. Weaknesses may exist; however, they are not significant
and they are easily corrected in the normal course of business.
3. A rating of ``3'' indicates less than satisfactory systems
development, acquisition, implementation, and change management
performance. Management and the board may often be unsuccessful in
identifying and implementing appropriate IT solutions; therefore
unwarranted risk exposure may exist. Project management techniques and
the SDLC are weak and may result in frequent project delays, backlogs
or significant cost overruns. The quality assurance function may not be
independent of the programming function which may impact the integrity
of testing and program change management. Technology solutions
generally meet end user needs, but often require an inordinate level of
change after implementation. Because of weaknesses, significant
problems may arise that could result in disruption to operations or
significant losses.
4. A rating of ``4'' indicates deficient systems development,
acquisition, implementation and change management performance.
Management and the board may be unable to identify and implement
appropriate IT solutions and do not effectively manage risk. Project
management techniques and the SDLC are ineffective and may result in
severe project delays and cost overruns. The quality assurance function
is not fully effective and may not provide independent or comprehensive
review of testing controls or program change management. Technology
solutions may not meet the critical needs of the organization. Problems
and significant risks exist that require immediate action by the board
and management to preserve the soundness of the institution.
5. A rating of ``5'' indicates critically deficient systems
development, acquisition, implementation, and change management
performance. Management and the board appear to be incapable of
identifying, and implementing appropriate information technology
solutions. If they exist, project management techniques and the SDLC
are critically deficient and provide little or no direction for
development of systems or technology projects. The quality assurance
function is severely deficient or not present and unidentified problems
in testing and program change have caused significant IT risks.
Technology solutions do not meet the needs of the organization. Serious
problems and significant risks exist which raise concern for the
financial institution or service provider's ongoing viability.
[[Page 31474]]
Support and Delivery
Support and delivery for IT represent an organization's ability to
provide technology services in a secure environment. This rating
reflects not only the condition of IT operations but also factors such
as reliability, security, and integrity, which may affect the quality
of the information delivery system. This includes customer support and
training, and the ability to manage problems and incidents, operations,
system performance, capacity planning, and facility and data
management. Risk management practices should promote effective, safe
and sound IT operations ensuring the continuity of operations and the
reliability and availability of data. The scope of this component
rating includes operational risks throughout the organization and
service providers.
For service providers of financial institutions, additional risk
factors must be weighed in the support and delivery component rating
such as the level of customer service and the management of third-party
services.
The rating of IT support and delivery are based on a review and
assessment of:
The ability to provide a level of service that meets the
requirements of the business.
The adequacy of security policies, procedures, and
practices in all units and at all levels of the financial institution,
and service providers.
The adequacy of data controls over preparation, input,
processing, and output.
The adequacy of corporate contingency planning and
business resumption for data centers, networks, service providers and
business units.
The quality of processes or programs that monitor capacity
and performance.
The adequacy of contracts and the ability to monitor
relationships with service providers.
The quality of assistance provided to users including the
ability to handle problems.
The adequacy of operating policies, procedures, and
manuals.
The quality of physical and logical security including the
privacy of data.
1. A rating of ``1'' indicates strong IT support and delivery
performance. The organization provides technology services that are
reliable and consistent. Service levels adhere to well-defined service
level agreements and routinely meet or exceed business requirements. A
comprehensive corporate contingency and business resumption plan is in
place. Annual contingency plan testing and updating is performed; and,
critical systems and applications are recovered within acceptable time
frames. A formal written data security policy and awareness program is
communicated and enforced throughout the organization. The logical and
physical security for all IT platforms is closely monitored and
security incidents and weaknesses are identified and quickly corrected.
Relationships with third-party service providers are closely monitored.
IT operations are highly reliable and risk exposure is successfully
identified and controlled.
2. A rating of ``2'' indicates satisfactory IT support and delivery
performance. The organization provides technology services that are
generally reliable and consistent, however, minor discrepancies in
service levels may occur. Service performance adheres to service
agreements, and meets business requirements. A corporate contingency
and business resumption plan is in place, but minor enhancements may be
necessary. Annual plan testing and updating is performed; and, minor
problems may occur when recovering systems or applications. A written
data security policy is in place but may require improvement to ensure
its adequacy. The policy is generally enforced and communicated
throughout the organization, e.g. via a security awareness program. The
logical and physical security for critical IT platforms is
satisfactory. Systems are monitored and security incidents and
weaknesses are identified and resolved within reasonable time frames.
Relationships with third-party service providers are monitored.
Critical IT operations are reliable and risk exposure is reasonably
identified and controlled.
3. A rating of ``3'' indicates that the performance of IT support
and delivery is less than satisfactory and needs improvement. The
organization provides technology services that may not be reliable or
consistent. As a result, service levels periodically do not adhere to
service level agreements or meet business requirements. A corporate
contingency and business resumption plan is in place but may not be
considered comprehensive. The plan is periodically tested; however, the
recovery of critical systems and applications is frequently
unsuccessful. A data security policy exists; however, it may not be
strictly enforced or communicated throughout the organization. The
logical and physical security for critical IT platforms is less than
satisfactory. Systems are monitored; however, security incidents and
weaknesses may not be resolved in a timely manner. Relationships with
third-party service providers may not be adequately monitored. IT
operations are not acceptable and unwarranted risk exposures exist. If
not corrected, weaknesses could cause performance degradation or
disruption to operations.
4. A rating of ``4'' indicates deficient IT support and delivery
performance. The organization provides technology services that are
unreliable and inconsistent. Service level agreements are poorly
defined and service performance usually fails to meet business
requirements. A corporate contingency and business resumption plan may
exist, but its content is critically deficient. If testing is
performed, management is typically unable to recover critical systems
and applications. A data security policy may not exist. As a result,
serious supervisory concerns over security and the integrity of data
exist. The logical and physical security for critical IT platforms is
deficient. Systems may be monitored, but security incidents and
weaknesses are not successfully identified or resolved. Relationships
with third-party service providers are not monitored. IT operations are
not reliable and significant risk exposure exists. Degradation in
performance is evident and frequent disruption in operations has
occurred.
5. A rating of ``5'' indicates critically deficient IT support and
delivery performance. The organization provides technology services
that are not reliable or consistent. Service level agreements do not
exist and service performance does not meet business requirements. A
corporate contingency and business resumption plan does not exist.
Testing is not performed and management has not demonstrated the
ability to recover critical systems and applications. A data security
policy does not exist and a serious threat to the organization's
security, and data integrity exists. The logical and physical security
for critical IT platforms is inadequate and management does not monitor
systems for security incidents and weaknesses. Relationships with
third-party service providers are not monitored and the viability of a
service provider may be in jeopardy. IT operations are severely
deficient and the seriousness of weaknesses could cause failure of the
financial institution or service provider, if not addressed.
[End of Proposed Text of Uniform Rating System for Information
Technology]
[[Page 31475]]
Dated: June 3, 1998.
Keith Todd,
Acting Executive Secretary, Federal Financial Institutions Examination
Council.
[FR Doc. 98-15231 Filed 6-8-98; 8:45 am]
BILLING CODE 6210-01-P 6720-01-P 4810-33-P 6714-01-P