Year 2000 Customer Awareness - Guidelines on Year 2000 Disclosure

CIRCULAR LETTER Series of 1999

TO : All Banks,  Non-Banks with Quasi-Banking Functions

SUBJECT : Year 2000 Customer Awareness - Guidelines on Year 2000 Disclosure

I.  Introduction

As the turn of the century approaches, customers and business partners are expected to become more curious on the state of Year 2000 readiness of financial institutions with whom they conduct business. It is important that financial institutions are prepared to answer any inquiry that it may receive from those customers and business. partners.

Communicating those efforts to third parties, e.g., borrowers, counterparties and especially depositors, merits serious attention and conscientious planning. This Circular-Letter enjoins all financial institutions to initiate an appropriate Year 2000 public disclosure. At the same time, it provides guidelines on the Year 2000 information and awareness campaign and what Bangko Sentral expects from financial institutions in the area of educating identified audiences, with particular emphasis on customers and depositors, with the ultimate goal of preserving public confidence in the banking sector.

It also provides various approaches in the prudent mitigation of risks that may arise resulting from erroneous public perception.

The Audience of Disclosure

The audience of Year 2000 disclosure may be any of the following:

• market participants or peers in the industry • counterparties and/or service providers • borrowers - corporate and consumer • depositors, prospective clients and customers • the organization itself - from the Board of Directors to employees • foreign correspondents • exchange operators • regulators

Any of the above must be informed of the status of the institution's Year 2000 readiness. However, financial institutions must carefully plan their disclosure strategy since each identified audience will need to have different types of information. The level of required disclosure may vary from one type of audience to another — but the objective must be the same, which is to preserve public confidence in the institution and in the industry as a whole.

II. Focus on the Customers

Banking is principally based on trust. Confidence in the financial institution is not earned overnight. It is a result of a series of confidence building measures which starts from the time the bank opens its doors to prospective customers. Depending on the ability of a financial institution to preserve the trust granted by a customer, the business relationship might last a lifetime.

The Year 2000 problem poses a great threat to that bondage. Thus, it is imperative that each financial institution communicates its Year 2000 strategies and readiness to customers in order to strengthen the foundation of that bondage.

Educating customers about the Year 2000 issue will be critical in minimizing unwarranted public alarm that could cause serious problems for financial institutions and the industry as a whole.

III. Guiding Principles for Effective Disclosure

Financial Institutions should:

Provide assurance that preserving public confidence — before and after the century crossover — receives the highest attention of the institution — through senior management and board of directors;

Develop strategies for responding to inquiries from customers regarding the institution's Year 2000 strategies and readiness;

Be ready with forthright and honest responses to questions and concerns that customers and business partners may have concerning their financial institution's Year 2000 readiness;

Should consider the types of customers with whom they need to communicate and develop appropriate ways of reaching their customers. Where applicable, awareness materials must be translated to the local dialect (or at least in Filipino) of the province where the branch of the institution is located.

Not make reference to the result of the Bangko Sentral on-site validation, in whole or in part, and should avoid any statement that Bangko Sentral has certified, approved, or is satisfied with the Year 2000 project of the institution;

Be cautious in disclosing the financial institution's business contingency plans that are in place. Emphasize to the customers that the `Plan B' in placed is a reinforcement of the Year 2000 readiness efforts already undertaken and not an admission of failure to prepare for the Year 2000;

Be cautious about promising or assuring absolute compliance. When necessary, explain the other issues involved like external factors and interdependencies of different institutions;

Talk to its legal counsel and seek advice on the appropriate words to use. Make sure that the people within the organization are using the same language — the organization is either YEAR 2000 COMPLIANT or YEAR 2000 READY.

Have trained personnel to respond appropriately to inquiries about the century date change by referring customers to appropriate explanatory materials or expert financial institution staff.

IV. BSP Disclosure Requirements

Within five (5) banking days from the date of the press release, a financial institution shall submit to Bangko Sentral a copy of the Year 2000 press (tri-media) release(s) containing the status of the financial institution's Year 2000 readiness. While Bangko Sentral does not require prior clearance, it shall evaluate the accuracy of the financial institution's press release and shall take appropriate steps if the press release is deemed inconsistent with the Year 2000 status as submitted and as validated during the on-site visit.

This Circular-Letter shall take effect immediately.

ALBERTO V. REYES Deputy Governor