G7/8 Finance Ministers Meetings

Common Principles of Business Continuity Planning in the Emergency of an Avian Flu Pandemic
(Prepared by the International Monetary Fund)
St. Petersburg, June 9-10, 2006

Statement by G8 Finance Ministers
Statement on Access to Energy Services for the Millennium Development Goals

Principle 1: The ultimate responsibility for business continuity planning (BCP) rests with an organization's board of directors and senior management.

A pandemic will present unique challenges and require targeted responses by management of financial institutions. Provision of adequate resources in monitoring, planning and managing the proper response to the emergence of an AFP will be required. Institutions have taken a variety of steps to document strategic plans, clarify responsibilities, and establish means for implementing plans. Examples of actions taken so far include:

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Principle 2: Organizations should explicitly consider and plan for major operational disruptions.

BCPs plans aim at ensuring critical levels of production. BCPs designed to deal with a sudden temporary failure of infrastructure, are being expanded to incorporate threats to staffing levels. Such plans identify critical functions and focus on day-to-day workload management during a pandemic. For financial institutions, these may include providing liquidity, keeping ATMs functioning, maintaining the payments system, and managing financial market and counterparty exposures. BCPs typically include some or all of the following items:

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Principle 3: Financial industry participants should develop recovery objectives that reflect the risk they represent to the financial industry.

Payment and securities settlement systems have the greatest need to ensure rapid and effective recovery capabilities. To that end, they typically have well developed standards concerning business continuity and operational risk. However, plans in many countries focus on back-up.facilities and redundancy of physical infrastructure and have only recently begun to plan for high absenteeism. Areas for additional development may include the following: Preparations by large complex financial institutions, key retail banks and the authorities themselves will need to be robust. Failure in any of these institutions will have an impact on the global financial system in addition to the direct impact on their own operations.

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Principle 4: BCPs should address the full range of internal and external communication.

Communication with the staff, main suppliers and with government officials is likely to be key to addressing an AFP. Staff communication is critical for preventing panic, strengthening morale and providing essential information to ensure that staff health is protected and critical functions continue. Communication of information concerning the pandemic should begin immediately so a track record is established of the provision of accurate information. Some institutions are reviewing their communication programs to determine if special policies are needed in an AFP to address the high degree of fear and family concerns. Examples of communication issues to consider include:

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Principle 5: Cross-border communications during a major operational disruption must be highlighted.

Communication of conditions in the country and in financial institutions with international regulators is a critical aspect of managing the impact of an AFP. Accordingly, regulators should ensure they will be able to communicate with appropriate counterparts. Because an AFP will have an extremely broad impact on many levels of the economy and society, information should be widely disseminated among the widest group possible.

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Principle 6: BCPs must be effective and identify necessary modifications through testing.

Testing BCPs and staffing arrangements are important but pose challenges. Testing remote sites and staff dispersal plans may be difficult because of the disruption and costs to the institution. Identification of scenarios to test may be problematic. Testing for low incidence virus may be relatively easy, but the lessons learned may not be adequate for a virus with high attack and fatality rates. In response, institutions are considering a variety of alternatives:

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Principle 7: Financial authorities should incorporate BCP reviews into their frameworks for assessing financial sector participants.

Central bank and regulatory bodies play an important role in crisis management and planning, and should review their BCPs and those of the financial sector participants with the aim of minimizing payment, settlement and other financial market disruptions in the event of a pandemic.

Crisis Planning

Response to an AFP will involve a wide range of national authorities. A high-level group might be established to coordinate the different responses. Members may include the government (ministry of finance), the central bank, and the regulators. In addition, broader contingency planning might include key health and infrastructural authorities.

National authorities may have a critical role to play in coordinating the responses of private sector agents, as well as with the authorities in other countries. Individual institution's decision on whether to invest in preparedness or not will be influenced by the decisions of their counterparts in the market: the authorities may have to take the lead in setting expectations or providing a forum for industry-wide discussions among competitors. Likewise, the authorities may have to take the lead in establishing procedures if there are problems with cross-border transactions, or with subsidiaries or parent companies. This will require dialogue with regulators in partner countries or multilateral bodies.

Payments and Settlement System

In addition to having adequate BCPs to deal with critical staff shortages, providers of payment and settlement services should also:

Economic Policies

Consider policies concerning the provision of liquidity to banks. How can banks remain liquid and what will be done if they become illiquid? Ensure that the central bank has an adequate supply of cash and determine when note destruction will be slowed or halted.

Develop plans to absorb excess liquidity (either during the crisis if possible, or in the immediate post-crisis period). Consider the functioning of open market operations and money markets in the event of a significant deterioration in the financial system (e.g., interbank markets could become segmented).

Central bank should ensure adequate supply of cash, determine when note destruction will be slowed or halted, and assure that there is adequate capacity to deliver cash to financial institutions, considering that transportation networks may be affected.

Establish means for monitoring developments in external credit lines. In conditions of an AFP, international credit lines may be called or not rolled over. Consider alternatives for limiting the extent to which such lines are called.

Consider the consequences of sharply increased volatility or impaired liquidity in financial markets, and the effects of using "circuit breakers" or temporary suspensions of major markets.

Establish means of addressing instability in money and FX markets, including knowing minimum conditions to ensure such systems continue to function efficiently, and, in the event of disruptive market movements, establishing emergency "circuit breakers."

Determine if and under what conditions capital controls could be used.

Prudential Regulation

Consider the extent to which some prudential rules may be eased. For example, how should banks treat loans coming due but not paid, and should prudential rules on minimum liquidity and loan classification be modified? How would these decisions be made?

Determine what information on prudential forbearance can be provided to financial institutions for the preparation of their own BCPs. To what extent can banks assume that auditing rules or reporting requirements or rules governing conduct of business will be temporarily eased as they develop their own plans?

In countries with a diverse regulatory structure, coordination among different regulatory bodies is essential. A coordinated approach to regulations for preparedness, testing and, in the event of a pandemic, regulatory forbearance is critical. Because an AFP will have an extremely broad impact on many levels of the economy and society, information should be widely disseminated among the widest group possible.

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Source: Official Website of the Russian G8 Presidency