| The Bank for International Settlements | | | | -The market and geographical focus |
| definition of a payment system states; "A | | | | intensified the effect of operational |
| payment system consists of a set of | | | | disruptions. |
| instruments, banking procedures and, | | | | |
| typically, interbank funds transfer systems | | | | Those financial institutions that were |
| that ensure the circulation of money" ("A | | | | significantly concentrated within the |
| glossary of terms used in payments and | | | | geographic area in New York City were most |
| settlement systems", Committee on Payment & | | | | affected by the devastation at the World |
| Settlement Systems. BIS, Basel. March 2003). | | | | Trade Center. This was made worse by the fact |
| | | | that some had consolidated their staff in one |
| Despite this we often associate the word | | | | or two locations for efficiency purposes. |
| "system" with only the technology; the bits | | | | Certain critical market functions, especially |
| and bites, the hardware and the software. We | | | | in the clearing and settlement of funds, |
| tend to forget that there is a lot more that | | | | securities, and financial contracts, depend |
| goes into making up a payment system. | | | | on a small number of specialist organizations |
| | | | each with their own operations in a |
| A further problem is the user's perspective, | | | | concentrated area. There were major |
| and in the case of a bank this is often from | | | | weaknesses in telecommunications capabilities |
| that banks own point of view - a view that | | | | because of these concentrations. Many firms |
| only concerns the bank itself. The outside | | | | believed they had full redundancy in their |
| world is seen as exogenous to the bank's | | | | communications systems because they had |
| "system". This is often the view taken when | | | | arrangements with multiple telecommunications |
| considering such critical issues as disaster | | | | providers or because they had contracted for |
| recovery and business continuity planning. | | | | diverse routing, only to discover that all of |
| What is often overlooked is the big picture - | | | | the communication lines traveled through any |
| the users, the clearing system and the | | | | of several single points of failure. |
| settlement agent. | | | | |
| | | | -There was a strong interdependence among |
| This total picture is something that was very | | | | financial system participants irrespective of |
| clearly illustrated in the effect that the | | | | where they were located. |
| events of 9/11 had on the payments system in | | | | |
| the United States generally, but more | | | | While financial institutions situated outside |
| specifically in lower Manhattan. The | | | | the New York City area were affected to a |
| aftermath of the 9/11 events clearly | | | | much lesser degree than were those inside it, |
| illustrated this - that disaster recovery and | | | | many felt the effects of the disaster. Most |
| business continuity planning had been too | | | | financial factors lost the ability to connect |
| focused on single localized events and | | | | to banks, brokers and other organizations in |
| assumed that all the other system components | | | | lower Manhattan. This blocked their ability |
| would remain intact. | | | | to conduct business and establish whether |
| | | | transactions had been completed as |
| The major lessons learned were; | | | | anticipated. Some customers were affected by |
| | | | actions of institutions with which they did |
| -Business continuity planning failed to take | | | | not even do business, when funds or |
| into account the possibility of wide-area | | | | securities could not be delivered due to |
| disasters and for the major loss of or | | | | operational problems at other institutions. |
| inaccessibility of critical staff. | | | | The suspension of all commercial flights had |
| | | | serious implications for the clearing of |
| At many organizations contingency planning | | | | cheques. |
| had generally concentrated on problems with a | | | | |
| single building or system. Some firms | | | | In the post-9/11 world there is a clear |
| maintained their backup facilities in nearby | | | | understanding that the financial system has |
| buildings, assuming that an "event" might | | | | many components, and they all have to work. |
| debilitate or destroy a single facility. Very | | | | It is the big picture, not the narrow "own" |
| few firms planned for an emergency that would | | | | view that has to be planned for. |
| disrupt whole business district or city. This | | | | |
| led certain firms to loose access to both | | | | Business continuity planning needs to be made |
| their main and backup facilities following 9 | | | | far more robust. Revised plans should include |
| 11 attacks. Generally firms had also not | | | | the ability for a rapid resumption of |
| considered the possibility that | | | | critical operations following the loss or |
| transportation of staff could be | | | | inaccessibility of staff in at least one |
| significantly disrupted and that their | | | | major operating site; or following a |
| ability to move personnel to an alternative | | | | wide-scale, regional disruption. It is vital |
| location would become extremely difficult or | | | | that all critical internal and external |
| impossible. | | | | continuity arrangements are effective and |
| | | | compatible. |