FleetBoston Financial Corporation
October 18, 2002
Re: Draft Interagency White Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System
Ladies and Gentlemen:
FleetBoston Financial Corporation ("Fleet" or the "Corporation") is pleased to offer the following comments with respect to the above-referenced matter on behalf of itself, Fleet National Bank, its primary banking subsidiary (the "Bank") and Fleet Securities, Inc., its securities affiliate. FleetBoston is the seventh largest financial holding company in the United States as of September 30, 2002, based on total assets. FleetBoston's principal businesses, Personal Financial Services and Wholesale Banking, offer a comprehensive array of innovative financial solutions to 20 million customers. Through its Personal Financial Services franchise, FleetBoston offers retail banking, wealth management and investment services, nationwide brokerage, credit card and consumer lending services. FleetBoston is a leader in small business services and commercial banking in the Northeast. FleetBoston's Wholesale Banking division provides commercial lending, syndications, leasing, cash management, asset-based finance, foreign exchange and interest rate derivatives to corporate clients.
Fleet welcomes the opportunity to submit its questions and comments on the Draft Interagency White Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System (the "White Paper") issued by the Board of Governors of the Federal Reserve System (the "Board"), the Office of the Comptroller of the Currency and the Securities and Exchange Commission (the "Agencies"). As a major financial services provider with its principal base of business and operations in the Northeast region of the United States and with customers and businesses across the U.S. and abroad, Fleet roundly supports the objectives cited in the White Paper -- to assure the resilience of critical financial markets in the face of wide-scale, regional disruptions and to strengthen the resiliency of the overall U.S financial system. Subsequent to the events of 9/11/01, Fleet undertook a substantial review of its operations, contingency plans, crisis management capabilities and potential vulnerabilities utilizing scenarios of wide-scale regional disasters. Fleet also conducted numerous review sessions with its largest and most demanding customers. From these reviews Fleet has undertaken several important steps to further assure its ability to recover and resume its business from the Bank's point of view, namely:
In addition, Fleet Securities (including Quick & Reilly and Fleet Specialist) have:
It is important that Fleet be able to properly understand the requirements being considered by the Agencies as they apply to Fleet specifically. This is especially necessary given the regional characteristics of the Corporation, its wide dispersion of customers and operations over a multi-state area in the Northeastern United States and the role it plays for its largest customers in funds transfer, foreign exchange and treasury products. Fleet has a key role in these areas for its largest customers even though Fleet's share may be moderate in terms of overall percentage or national ranking for these products. Therefore, Fleet respectfully suggests that additional clarity is needed to allow the Corporation to plan and respond in a manner appropriate to its size, position in the marketplace and the regional nature of its operations that principally are based from Pennsylvania to Maine.
Specifically, Fleet views "core clearing systems" as referenced in the White Paper to be the national clearing systems for large dollar payments such as "Fedwire" and "CHIPS". Fleet also assumes that "major participants" are the major clearing banks that process large volumes of payments and dominate market share in those areas. If the Agencies define "core clearing systems" to include banks and large financial institutions, Fleet would like to know if a formula will be proposed that would clearly distinguish "core" from "significant" clearers. Once these criteria are established, will "core" institutions be required to adhere to shorter recovery times than less dominant, but still "significant" clearers? Further, in terms of its regional businesses and competitiveness, Fleet suggests that other banks sharing its regional footprint with a significant market share should also be held to a similar standard for "substantial participants" if they are a substantial player in the region as opposed to in the country as a whole.
Fleet is also concerned that unintended consequences may arise if, through clarifying the obligations of core clearing and significant players, it became necessary for a costly and fundamental shift in an entity's markets related settlement activities. For example, a requirement for costly parallel operations could have competitive consequences, for entities that are required to make significant investments for an "active-active" capability. In light of the cost, these entities may choose not to make these investments and withdraw from such businesses, creating greater concentration risk for the marketplace as a whole.
Fleet also would like to raise the issue of third party service provider preparedness. Can we assume that third party service providers will also be held to certain standards of preparedness? How will the readiness of such third parties be measured if they are not regulated by a specific agency? Financial firms need to be assured that such service providers will also be subject to preparedness standards before they invest sizeable dollars in plans that rely in part on such third parties.
The White Paper addresses the sound practices surrounding a "wide-scale, regional disruption" and elaborates on infrastructure components such as transportation, telecommunications, power grids, water supply etc. that would likely be disrupted in a wide-scale disaster. Fleet suggests the Agencies clarify the term "regional" in this context. For example, is "regional" defined as an area expressed in square miles adjoining a major metropolitan area, an area expressed in terms of radius from the center of a disaster, or is it intended to describe a section of the nation e.g. the Northeast, the Mid-Atlantic region etc?
Fleet has a sizable investment in its large dollar payments operations and systems located in the Northeast. The Corporation operates two active operations with dedicated "non-shared" personnel in a region that is not adjacent to major metropolitan areas. The two operations sites are approximately 25 miles in distance from each other and are supported by data centers in excess of 100 miles from these centers and from each other. Fleet considers this operational model (active-active) to meet business resumption planning requirements because the sites are located in a low-risk region of the Northeast that, as stated above, is not adjacent to major metropolitan areas.
In addition, the operations centers are located in areas with several access routes so that if a major highway were inaccessible, alternate routes would be available. The Corporation is of the opinion that this arrangement provides substantial resilience to its large value payments capabilities and to its customers that use this service. Fleet is therefore of the opinion that mileage alone should not be the sole consideration in determining the effectiveness of business continuity infrastructure for entities potentially defined as "substantial participants" in wire transfers. This is especially true for those entities with a regional business base and operations that are distant from major financial centers.
The White Paper states that the recovery of critical activities should be completed by the "end of each business day". Fleet seeks clarification on the definition of a "business day". Is this definition based solely on Eastern Standard Time (EST) and does the definition consider the time the banks' systems require after payment processing hours to reconcile and update its accounting books and records?
The White Paper also refers to the need for firms playing a significant role in critical financial markets to set a recovery time target of not later than four hours and an emerging objective of not exceeding two hours. Fleet suggests that more rigorous criteria should be applied to those institutions classified as "core" as opposed to those deemed to be only "significant participants". In addition, Fleet believes that the standards should be set on a business by business basis as opposed to established for all businesses of a particular provider. For example, a bank may be a "core participant" in one business where a two hour time frame should be the goal but a "significant" or non significant participant in other businesses such that a longer time frame is more appropriate.
Fleet would also like to address the issue of the 180-day time frame set for banks to complete their planning process and to adopt implementation plans. We believe that each financial services provider will need to consider in full the requirements set forth in the final Agency recommendations as they may apply to them before estimating whether the 180 day time frame is sufficient. Based on the final recommendations and the level of plan detail required, Fleet will be able to estimate such time frames with more certainty. Certain requirements could conceivably take more than 180 days if they require substantial investments and commitment of resources.
Finally, as an overall comment Fleet suggests that the Agencies take a pragmatic approach to implementation times that allow businesses to follow best practices and adopt an approach and time frames appropriate for the degree of change required.
In responding to our own internal review and assessment of Fleet's capabilities post-9/11 and in full consideration of the requirements voiced by our best and most demanding customers whose views we have sought out, we believe that the Corporation has created a business resumption and crisis management capability capable of dealing with a wide-scale regional disruption while continuing to meet the needs of its customers.
We look forward to working with the Agencies as they complete all phases of this project and achieve their objectives to assure the future resiliency of our financial system. If you need additional information, please contact me at (617) 434-3221.