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