WASHINGTON--Rep. John D. Dingell (D-MI), Ranking Minority Member of the House Committee on Commerce, today released a Securities and Exchange Commission (SEC) report on the readiness of the agency, the U.S. securities industry, and public companies in addressing the information processing problems presented by the Year 2000. The 25-page SEC staff report, the first of three annual reports to Congress, was prepared in response to Rep. Dingell's request of December 6, 1996.

Dingell issued the following statement:

"While there appears to be a high level of awareness and activity, the lack of progress in many areas is troubling. It is unclear whether this is due to lack of management attention, the high costs of conversion, or competition for the pool of the best-qualified systems experts.

Sunlight being the best disinfectant, it may be time to 'name names' in the June 1998 report so that we know who is lagging and posing a threat to our financial system. We have been advised that some major broker-dealers are behind other parts of the financial industry in addressing this problem. The SEC needs to develop its own capability for evaluating these efforts in order to spot potential train wrecks. The 1998 report also should report on actual Year 2000 disclosures by reporting companies and advisers, with examples.

The SEC's warning bears repeating: it is not possible to guarantee the remediation efforts of any single entity or collective enterprise. But the necessary steps must be taken and contingency plans laid."

The SEC report focuses on the U.S. securities industry, with over 58 million shareholders of record participating in markets trading 200 billion shares annually, relying heavily on computerized information processing technology. The report's principle findings are:

• The SEC's largest internal system, EDGAR, is currently Year 2000 compliant. Of the remainder of the SEC's 88 central systems, 55 perform critical functions. Of these, 6 are now Year 2000 compliant, while 38 systems still need work. The SEC must outsource this work and is finalizing a request for proposals (RFP). In addition, the SEC has approximately 300 individual or single-office applications located throughout its headquarters, district and regional offices, most of which will be fixed by upgrading software.

• The exchanges, Nasdaq, and clearing organizations (SROs) are making "adequate progress." All SROs are aware and have begun planning but "a few need to give this problem a greater priority." Most SROs have made adequate progress on solutions but more progress is needed in certain areas. Contingency plans still need to be made and implemented, as well.

• The SEC's Office of Compliance Inspections and Examinations (OCIE) has prepared a Year 2000 section for its examinations of broker-dealers, transfer agents, investment advisers, and investment companies. OCIE has found a "very high level of awareness" -- largely as a result of SEC, SRO, SIA and ICI efforts. The OCIE exams are not designed to test the efficacy of registrants' corrective actions or plans -- the staff is not equipped to make such judgments -- so the high levels of awareness and responses underway do not guarantee that the problem will be universally solved.

• Where Year 2000 issues are material to investors, public companies must make disclosures in "Management's Discussion and Analysis of Financial Condition and Results of Operations" about Year 2000 activities, expenditures, and the risks of a failure to complete necessary remediation. Likewise, investment companies and investment advisers must disclose when the Year 2000 problem presents a material threat to an adviser's ability to satisfy its contractual obligations to the investment company.

• Existing auditing, independence, and accounting standards are adequate to alert management, investors and other users of financial statements to the seriousness of the problem. One international audit firm, as a matter of policy, required a warning about the Year 2000 problem in management letters issued to clients at the conclusion of the 1996 audit. Some insurance companies are investigating entities they insure for Year 2000 preparedness before underwriting officers and directors liability insurance. The SEC warns that an independence issue may arise if the auditor of a registrant's financial statements designs or modifies programs to correct the Year 2000 problem.

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