The Times, London

April 19th, 1997

Marianne Curphey, Gavin Lumsden and Nathan Yates

Time bomb is still ticking

The financial services industry is gearing up for a huge disaster avoidance campaign with its bid to avert "millennium bug" chaos. Banks, building societies, insurance companies and fund managers fear that they could be hit by mass computer failures as their machines grapple with the switchover from 1999 to 2000.

Although finance companies are spending millions of pounds to tackle the millennium problem, experts say the industry is poorly prepared.

Because most computers count only the last two digits of the year, the move from 99 to 00 will appear as a 99-year leap backwards in time. If no adjustments are made, this will cause at least a major disruption in records, and at worst a complete systems failure.

Repercussions for customers are potentially serious. A leap backwards in time could result in all the interest on your building society account being wiped out. On the other hand, some computers may overcome the illogicality of losing 100 years by assuming time has instead moved forward. This could add a century of interest to your savings, although you could also receive 100 years' worth of mortgage repayment bills or standing orders. If systems shut down, records could be lost altogether.

Since many older systems interpret the figure 99 in the year box as an instruction to close a file, this could occur without a total shutdown in some cases. The loss of records could wipe out bank and building society accounts and share records. If enough computers are paralysed, currency markets could be damaged and fund managers' investments could be frozen.

The insurance industry, which needs to calculate pension maturity values and yearly bonuses way beyond the year 2000, is taking the threat of computer chaos very seriously. The British Insurance and Investment Brokers' Association (BIIBA) has established a Year 2000 Project Team, a task force of brokers, insurers and IT consultants who next week will begin inspections of software houses to monitor progress. Commercial Union, Eagle Star, Guardian, General Accident, Norwich Union and Royal & SunAlliance are all lending financial support.

Mike Williams, chief executive of the BIIBA, said: "The millennium is probably the first non-negotiable deadline that industry and commerce have ever faced, but we are still seeing far too much talk and not enough action."

By December 31, 2023 all software houses must be able to provide evidence that they are taking steps to deal with the problem. Otherwise, the BIIBA will recommend that its 2,500 corporate insurance broking members switch to another software supplier.

James Duffell, a spokesman for NU, said: "There is certainly no room for complacency. Not only are we looking at our systems, we are also asking our suppliers to examine theirs, to ensure there are no glitches."

Experts say that companies which have not begun reprogramming their machines stand little chance of stamping out the millennium bug. But many institutions admit they have not yet started making technical alterations.

Building societies like the Alliance & Leicester and fund managers such as Henderson and Jupiter are still in the planning phase of their operations.

Even state-run financial bodies are lagging behind the timetable recommended by IT companies. The Department of Social Security will not begin adjusting its computers until August, although it insists that there is no chance of claimants being credited with 100 years' worth of income support.

The Inland Revenue acknowledges that it faces headaches over the PAYE (pay as you earn) system which collects tax directly from employees' wages. Not only does the Revenue have to update its network, it has to ensure it tallies with those of payroll firms.

Most financial institutions contacted by The Times said that they anticipated no millennium disasters. Nationwide Building Society is employing 180 staff to reprogram its computer network, and both the Halifax and the Woolwich building societies expect to spend 200 man years reviewing their systems. The Alliance & Leicester and the Bradford & Bingley Building Society are already hiring extra staff to help with the process.

Nationwide's reprogramming scheme is widely known as one of the industry's most comprehensive, but its director, Ian Beale, admits that even his company cannot be certain the millennium will turn smoothly.

Mr Beale said: "We're devoting a large amount of resources to this issue, but it would be naive to guarantee that there will be no problems at all. The task is huge."

© Copyright The Times Newspapers Ltd 1997

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