Regulators Are Less Active in Encouraging and Validating Year 2000 Preparedness
T-GGD-99-56: Published: Mar 11, 1999. Publicly Released: Mar 11, 1999.
Pursuant to a congressional request, GAO discussed the banking, securities, and insurance regulators' efforts to validate their year 2000 preparedness.
GAO noted that: (1) banking and securities regulators have supplied guidance and direction regarding year 2000 problems, while state insurance regulators GAO contacted have provided little guidance to their regulated institutions; (2) within the banking industry, the Federal Financial Institutions Examination Council (FFIEC), through its member agencies, has taken actions to: (a) raise banking industry awareness regarding the year 2000 problem; and (b) provide financial depository institutions with year 2000 guidance; (3) within the securities industry, the Securities Exchange Commission (SEC) has engaged in similar efforts to promote and encourage year 2000 readiness, primarily through the securities industry's self-regulatory organizations (SRO); (4) but state insurance regulators GAO contacted and the National Association of Insurance Commissioners have not been as proactive in this area; (5) FFIEC has issued interagency guidance to federally regulated depository institutions on year 2000 topics such as testing, contingency planning, and business risk; (6) although SEC has issued limited guidance on year 2000 problems, the Securities Industry Association and other SROs have issued guidance to their members; (7) with a few exceptions, state insurance regulators GAO contacted have not provided insurance companies with formal guidance or regulatory expectations regarding year 2000 readiness; (8) financial regulators have two principal ways of verifying the year 2000 readiness of their regulated institutions: (a) on-site examinations; and (b) broad scale testing; (9) banking regulators rely primarily on examinations targeted directly at issues related to year 2000 problems to validate the progress and status of their regulated institutions; (10) this will provide regulators with not only a snapshot of institutions' status now, but a perspective of their progress over time; (11) the interconnectedness of the securities industry lends itself to broad scale testing to an even greater extent; (12) with the approval of SEC, over 400 institutions are participating in street-wide testing; (13) street-wide testing is the principal year 2000 validation vehicle in the securities industry; and (14) validation by insurance regulators of the year 2000 readiness of insurance companies began late, and, in most states, lacks the vigor demonstrated by bank and securities regulators.