September 10, 1999
Financial Supervisory Agency

1. Year 2000 Readiness of Financial Institutions (As of the end of June 1999)

      Under the order entitled “Submission of Materials Regarding Efforts to Deal with the Year 2000 Problem” dated December 18, 1998, issued pursuant to Article 24, Paragraph 1 of the Banking Law,etc., financial institutions (deposit-taking, etc., financial institutions, insurance companies, securities companies, and investment trust management companies) were required to submit reports. A composite summary of these reports on Year 2000 readiness as of the end of June 1999 is appended hereto as Appendix 1.

      According to these reports, 98% of all financial institutions (1,535) had completed the modification of their “important systems” by the end of June 1999 (up 10 percentage points from the previous reports [end of March 1999]). Of these, 96% of all financial institutions had also completed internal testing(up 19 points).

      In addition, 94% of all financial institutions had completed contingency plans(up 72 points).

Note: In addressing this problem it is important to prioritize the systems that need to be modified before modifying them. Thus, in the reports requested by the Financial Supervisory Agency(FSA), “important systems" were defined as those systems that will directly impede the respondents' business if compliance measures are not completed. It was left up to the judgement of the individual financial institutions to determine the specifics of what is important, but typical examples given included systems for key accounts, external connections, and international systems.

2. Joint Connection Tests

      With regard to key important systems, namely, systems relating to settlements (the Bank of Japan(BOJ) Financial Network System (BOJ-NET), the Zengin System, the Tokyo Stock Exchange (TSE), and other settlement and transactions systems), institutions such as the BOJ, the Japanese Bankers Association,and the TSE have conducted joint connection tests 6 times since December last year. The processing by the BOJ and the other institutions with respect to exchanges of data with year 2000 dates between test participants through the various settlement systems was basically normal.

3. Action Taken after Receipt of Reports

      From these reports, it was clear that the percentages of financial institutions that have completed the modification and testing of important systems and have prepared contingency plans are substantially higher than in the previous report, but that some institutions had not completed these steps as of the end of June, and that, even among those institutions that had already completed them, in some cases there was a lack of clarity on such matters as the essentials of how to conduct internal tests and the content of contingency plans. These financial institutions (9.1% of all financial institutions) are now being requested to submit supplementary reports pursuant to Article 24 of the Banking Law,etc.

      Given that a period of less than four months remains before the year 2000, the FSA is to further strengthen such measures as part of the individual monitoring of all financial institutions, in order to confirm such matters as the state of completion of compliance measures for systems and the content of contingency plans. In doing so, the FSA will strictly implement measures backed by law, for example, pursuant to Article 24 and Article 26 of the Banking Law.

4. Measures Taken by Institutions Other Than Financial Institutions to Address of the Year 2000 Problem (As of the end of June 1999)

      With regard to institutions under its jurisdiction other than financial institutions, the FSA requested industry bodies to submit reports on the state of the Year 2000 compliance of their affiliated institutions. (In the cases of securities finance companies, credit guarantee corporations, and the Tokyo Bankers Association, through the issuance of legal reporting orders.) According to the reports received from these bodies regarding the state of Year 2000 readiness as of the end of June 1999, with respect to institutions that could have a substantial impact on the financial system, namely tanshi houses(money market brokers), securities finance companies, and clearinghouses, the modification and testing of important systems have been completed in all cases, and in most cases the preparation of contingency plans has also been completed (See Appendix 2).

Inquiries: Mr.Kitagawa or Mr.Kiyoshige Year 2000 Task Force Financial Supervisory Agency Tel.: 03-3506-6180

Appendix 1

Outline of the Overall State of Financial Institutions' Year 2000 Readiness at the End of June 1999

(Deposit-taking, etc., financial institutions, insurance companies, securities companies, and investment trust management companies)

Financial institutions covered by the survey (Total: 1,535):

- 1,087 deposit-taking financial institutions (19 major banks, 64 regional banks, 61 regional banks II, 87 branches of foreign banks, 17 trust-bank subsidiaries, 10 foreign-affiliated trust banks, 395 shinkin banks and the Zenshinren Bank, 42 labor banks and the Rokinren Bank, 311 credit cooperatives and the Shinkumi Federation Bank, 81 credit federations of agricultural cooperatives, credit federations of fisheries cooperatives, and the Norinchukin Bank)

- 110 insurance companies (44 life insurance companies, 35 nonlife insurance companies, 3 foreign-affiliated life insurance companies, 28 foreign-affiliated nonlife insurance companies)

- 338 securities-related firms (216 securities companies, 54 foreign securities companies, 68 investment trust companies)

1. State of Progress in Modification and Internal Testing of Systems

(1) According to the reports received from the 1,535 financial institutions surveyed concerning the state of Year 2000 readiness as of the end of June 1999, 1,502 had completed the modification of important systems, accounting for 98% of the total (up by 10 percentage points from the previous reports [as of the end of March 1999]). Among these, the number of institutions that had completed internal testing was 1,471, accounting for 96% of the total (up 19 points).

      A total of 64 institutions (1 regional bank II, 11 foreign banks, 17 shinkin banks, credit cooperatives, etc., 12 insurance companies, 7 securities companies, 7 foreign securities companies, and 9 investment trust companies) had not completed internal tests of important systems by the end of June. However, most of these stated that these would be completed by the end of September, and in or after October in the cases of 4 institutions (0.26% of the total; 1 foreign bank, 1 foreign securities company, and 2 investment trust companies).

(2) With regard to systems other than important systems, 1,364 institutions (89%; up 26 points) had completed modification by the end of June, and 1,275 (83%; up 31 points) had completed internal testing. Of the institutions that had not completed modification or internal testing by the end of June, most stated that these would be completed by the end of September, but 7 stated that neither modification nor internal testing would be completed until October or later (0.46% of the total; 2 foreign banks, 1 insurance company, 1 securities company, 2 foreign securities companies, and 1 investment trust company).

(3) With regard to key important systems, namely, systems relating to settlements (BOJ-NET, the Zengin System, the TSE, and other settlement and transactions systems), institutions such as the Bank of Japan, the Japanese Bankers Association, and the TSE conducted joint connection tests for the first business day of the year 2000 in December last year and in February, May, and June this year, and tests for the year 2000 leap day were conducted in April and July.

      The results of these tests demonstrated that with regard to the sending and receipt of data with year 2000 dates between test participants through the various settlement systems, the processing by the BOJ and the other institutions was basically normal.

      In addition, tests of cash dispenser (CD) and automated teller machine (ATM) networks (CD network relay centers' data communications systems) established by different categories of financial institutions were conducted in April (for the beginning of 2000) and May (for the leap day), whereupon each category confirmed that there were no problems with the processing.

2. Relationships with customers

      With respect to the possible impact of the Year 2000 problem on financial- institution customers and counterparties (excluding electronic-banking, etc., counterparties), 87% of the financial institutions had included this in their plans and were taking action (16 points higher than in the previous reports), and among these all major banks, regional banks, and regional banks II were taking action.

      With regard to tests with electronic-banking, etc., counterparties and counterparties delivering data on magnetic tape or floppy disks, whether or not testing could be conducted, and the timing of the testing, depended upon the wishes of those counterparties. In part because of this, with the exclusion of the 653 institutions that responded that it was not necessary to take measures, only 649 (74%) of the remaining 882 stated that they had completed testing, and the remaining 62 (7%) were to perform testing in or after October, or had not determined the timing.

3. Organizational Aspects

(1) Status within management

      With regard to the status given to this problem in management, almost all financial institutions had given it highest-priority status in their management plans.

(2) Estimates of total expenditure

      With regard to the estimation of the expenditure necessary to address the problem, almost all financial institutions had compiled estimates, the aggregate total for all institutions being 699.1 billion yen.

      The average estimate per financial institution was 12.1 billion yen in the case of major banks, 5.6 billion yen in the case of major life insurance companies, and 1.3 billion yen in the case of securities companies under the supervision of the FSA.

4. Preparation of Contingency Plans

      A total of 1,442 institutions had completed the preparation of contingency plans as of the end of June this year, representing 94% of all financial institutions (up 72 points from the previous reports).

      Of the 93 institutions (17 foreign banks, 27 shinkin banks, credit cooperatives, etc., 18 insurance companies, 13 securities companies, 5 foreign securities companies; and 13 investment trust companies) that were still preparing plans as of the end of June, the majority stated that they would complete preparation by the end of September, but 4 institutions (0.26% of the total; 1 foreign bank, 2 shinkin banks, credit cooperatives, etc., 1 investment trust company) stated that they would not complete the plans until October or later.

      In respect of the content of the contingency plans, for many financial institutions the plans entailed confirming the startup of their systems on January 1, 2000; participating in the confirmation tests of BOJ-NET, etc., on January 2; taking steps based on these on January 3; and ushering in the first business day of the year with a totally sound system on January 4.

      In addition, according to research conducted by the Japanese Bankers Association, all member banks are taking such steps as providing backup for magnetic media for data at the year-end, so as to ensure that there is no disappearance of customer deposit data.

      With regard to key important systems, namely, systems relating to settlements (BOJ-NET, the Zengin System, the TSE, and other settlement and transactions systems), institutions such as the BOJ, the Tokyo Bankers Association, and the TSE have formulated contingency plans.

5. Disclosure of State of Compliance

      With regard to disclosure of the state of compliance, 95% of all financial institutions had made disclosure of some kind. This represents a substantial increase from the 78% in the previous reports. Disclosure has been made by at least 80% of all institutions in each category of financial institution, and this figure is 100% in the categories of major banks, regional banks, labor banks, agriculture and fisheries-related institutions, major life insurance companies, and major nonlife-insurance companies.

      Nevertheless, 83 institutions (5%) had not made this disclosure as of the end of June, and although most of these stated that they would do so by the end of September, in the cases of 3 institutions this will not be done before October.

      The methods used for disclosure by the institutions that had already done so included the Internet homepages, the display of posting bills in branch offices, and the distribution of pamphlets. However, in the future it will be necessary both to improve the content of the disclosure, and to change the content to accord with the state of compliance.

      Many of the institutions that had not carried out this disclosure planned to do so by means of disclosure publications from July onwards. However, it is essential to do so quickly, because as further progress in compliance is made by the entities with which financial institutions conduct business -- for example, the formulation of contingency plans -- the state of compliance of the financial institutions with which those entities do business becomes important information for them.

6. Reporting the Occurrence of Problems

      Pursuant to Article 24, Paragraph 1 of the Banking Law,etc, the FSA has required all banks, insurance companies, securities companies, and other financial institutions to submit reports on system problems occurring since January this year that appear to have their origins in the Year 2000 problem (including the so-called Year 1999 problem). This was done by means of a notice entitled “Submission of Materials Regarding System Problems Caused by the Year 2000 Problem” dated March 19, 1999. During the period from the beginning of April this year to the end of June, 16 reports were received from 10 financial institutions (down by 36 from the January-March quarter). In every case, rectification or substitution measures were implemented rapidly after the occurrence of a problem, and the problems were resolved without disruption.

      The following is a breakdown of the number of reports by category of institution: 5 reports filed by 2 banks; 3 filed by 2 cooperative financial institutions, etc.; 7 filed by 5 insurance companies; and 1 filed by 1 securities company.

      Among these, 4 reports (1 bank, 1 shinkin bank, 2 insurance companies) concerned cases in which customers, etc., were affected. These involved the mislevying of a CD charge, a delay (1 hour) in processing the cancellation of a property-accumulation contract, and 2 cases of incorrect presentation of insurance certificates. (The mislevying of the CD charge resulted from a setting error following renovation for Year 2000 compliance, and thus strictly speaking did not result from the Year 2000 problem itself.)

7. Action Taken after Receipt of Reports

      From these reports it was evident that the percentage of financial institutions that have completed the modification and testing of important systems and have prepared contingency plans are substantially higher than in the previous reports, but that some institutions had not completed these steps as of the end of June, and that, even among those institutions that had already completed them, in some cases there was a lack of clarity on such matters as the essentials of how to conduct internal tests and the content of contingency plans. These financial institutions (9.1% of all financial institutions) are now being requested to submit supplementary reports pursuant to Article 24 of the Banking Law,etc.

Note: Financial institutions required to submit supplementary reports

* Number of foreign-affiliated firms included in the numbers at left.

Appendix 2

Overall State of Financial Institutions' Year 2000 Readiness at the End of June 1999

(Financial institutions in categories under FSA jurisdiction other than deposit-taking, etc., financial institutions, insurance companies, securities companies, and investment trust management companies)

The Y2K Action Plan, issued on September 11, 1998, by the Japanese government's Advanced Information and Telecommunications Society Promotion Headquarters, sets out that individual ministries and agencies should identify the state of Year 2000 readiness of the industries under their jurisdiction and disclose the results. The FSA subsequently requested industry bodies in categories of institutions under its jurisdication other than deposit-taking, etc., financial institutions, insurance companies, securities companies, and investment trust management companies, to submit reports on the state of the Year 2000 readiness of their affiliated institutions. The results are as stated below.

(1) Issuers of prepaid cards

      Through the Maebaraishiki Shohyo Hakko Kyokai, the industry body for issuers of prepaid cards, a survey of the state of Year 2000 readiness as of the end of June 1999 of its members and other companies specializing in the issue of prepaid cards was conducted, in which 70 responses were received from the 88 companies surveyed. Among these, after excluding 10 firms for which no action was necessary, 50 (83%) of the remaining 60 firms had completed modification and simulation tests regarding the systems important for card-issuing operations, and most of the other 10 firms will complete modification and simulation tests by October 1, 1999.

      A total of 45 firms had prepared contingency plans or had clear plans to do so. Of these, 29 had already finished formulating plans.

(2) Issuers of mortgages

      Through the Mortgage Companies Association, a survey of the state of Year 2000 readiness of its members as of the end of June 1999 was conducted, in which 61 responses were received from among the 64 companies surveyed. Among these, after excluding 9 firms for which no action was necessary, 44 (85%) of the remaining 52 firms had completed modification and simulation tests for important systems, and the other 8 firms will complete modification and simulation tests by September 1,1999 at the latest. A total of 28 firms had prepared contingency plans or had clear plans to do so. Of these, 24 had already finished formulating plans.

(3) Moneylenders

      In a sampling survey of the state of Year 2000 readiness as of the end of June 1999 conducted through the medium of the Zenkoku Kashikingyo Kyokai Rengokai, the industry body for moneylending firms, responses were received from 147 firms. Among these, after excluding 9 firms for which no action was necessary, 88 (64%) of the remaining 138 had completed modification or replacement, and many of the total will complete modification by October 1,1999. A total of 86 firms (62%) had clearly set out the timing of simulation tests, and 68 (49%) had prepared contingency plans.

(4) Investment management firms

      Through the Japan Securities Investment Advisors Association, a survey of the state of Year 2000 readiness of its members as of the end of June 1999 was conducted, in which responses were received from 167 (43 advisory, 124 discretionary) of the 225 firms surveyed (100 advisory, 125 discretionary). Among these, 82 firms did not need to take action, because ,for example, they did not use computers or they used only external systems on an outsourcing basis. After excluding these, 73 (86%) of the remaining 85 firms (7 advisory, 78 discretionary) had determined target times for achieving readiness and were taking action, and 68 firms (80%) had already finished formulating contingency plans.

(5) Firms engaging in financial-futures business

      Through the Financial Futures Association of Japan, a survey of the state of Year 2000 readiness of all 14 of its members (excluding banks and others surveyed under different categories) as of the end of June 1999 was conducted. As regards important systems, 12 firms had completed measures, including simulation tests, and the progress of the other firms was generally according to plan. A total of 11 firms had finished formulating contingency plans.

(6) Tanshi houses(money market brokers)

      Through the Association of Call Loan and Discount Companies, a survey of the state of Year 2000 readiness of its 6 members as of the end of June 1999 was conducted. With regard to important systems, all firms had completed modification on schedule by the end of December 1998, and all had also completed simulation tests by the end of May 1999. In addition, all firms had participated in the testing of BOJ-NET, and all had finished formulating contingency plans.

(7) Securities finance companies

      The 3 securities finance companies were required to submit reports on their state of Year 2000 readiness as of the end of June 1999. All had completed the modification of important systems, and internal tests had also been completed by the end of June 1999. Two firms had finished preparation of contingency plans, and the other was in the process of doing so.

(8) Credit guarantee corporations

      The 52 credit guarantee corporations were required to submit reports on their state of Year 2000 readiness as of the end of June 1999. With regard to important systems, 48 corporations (92%) had completed modification, 44 (85%) had completed internal testing, and the other corporations generally projected completion of compliance measures by the end of September 1999. With respect to contingency plans, 39 corporations had prepared these, and 13 were in the process of preparing them.

(9) Tokyo Bankers Association (Clearinghouse, etc.)

      The Tokyo Bankers Association, which maintains the clearinghouse system (also the Zengin System, the Personal Credit Information Center, etc.) was required to submit a report on its state of Year 2000 readiness as of the end of June 1999. The modification of all systems has been completed, and connection tests with banks and other institutions have been held several times since December last year. The preparation of contingency plans for all systems has been completed.

Note: Among the total number of clearinghouses (606 as of September 1,1999), 106 are operated by 67 bankers associations in various regions throughout Japan, but according to the Tokyo Bankers Association, it alone has systems linked with the Bank of Japan. Of the other 66 associations, 33 have computers, and 6 of these needed to be made Year 2000 compliant. All 6 completed these measures by May 1,1999.

      With regard to the contingency plans of the clearinghouses, bankers associations in all regions have been requested to prepare contingency plans based on that drawn up by the Tokyo Bankers Association. All bankers associations will complete preparation of these plans by the end of September.