INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 24, 1998

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I call the meeting to order pursuant to Standing Order 108(2), a study on information technology preparedness for year 2000.

We're very pleased to have with us today several witnesses to continue our discussion on preparedness for the year 2000. We have with us today the Insurance Bureau of Canada, the Canadian Bankers Association, and the Office of the Superintendent of Financial Institutions. We will be hearing from these witnesses and then we'll be going to questions for the first hour.

I would propose that we begin in the order in which they're listed. That means we'll begin with the Insurance Bureau of Canada, and I believe it's Mr. Kennedy who will begin. Is that correct?

Mr. Alex Kennedy (Executive Vice-President, General Counsel and Corporate Secretary, Insurance Council of Canada; Insurance Bureau of Canada): Correct. Thank you, Madam Chair.

With me is Gary Kapac and John Mitchell. Gary is with the Insurance Information Centre of Canada, and John is a colleague in the Insurance Council of Canada.

Perhaps I could say a quick word about our two associations. As part of an effort to reduce the number of industry associations and to reduce the amount of time that CEOs of our member companies were spending at association board meetings, the Insurance Bureau of Canada, the Association of Canadian Insurers, and the Insurance Claim Prevention Bureau were in effect amalgamated under the umbrella organization, the Insurance Council of Canada. While these three groups no longer exist as separate corporations, they very much continue to exist as operating divisions of the Insurance Council of Canada. As part of that reorganization, IBC transferred its former function of collecting and analysing insurance-related data to the Insurance Information Centre of Canada, which is now the only body within the P and C insurance industry carrying on that function.

I would like to make some general comments about what ICC has done to advise the industry about the year 2000 problem. My colleague Gary Kapac will review for you what his organization has done and what it has ascertained about the state of preparedness of insurers.

Early in 1997 the Insurance Bureau of Canada took steps to draw to the attention of its member companies the fact that they are rarely, if ever, going to encounter a problem that is so deceptively simple but has such widespread power and scope for economic disruption as the year 2000 problem. As we get ever closer to the year 2000 and as there is ever-increasing comment in the media about the problem, hopefully the state of business preparedness is improving over what Mr. Manley's task force found earlier this year.

Certainly within the property and casualty insurance industry I think it would be fair to say that no insurer is unaware of the problem and of the need to take proper measures to deal with it.

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The task force appointed by Mr. Manley recommended that the insurance community should provide its corporate clients with early notification of the year 2000 issue and of the requirement for the availability of a formal year 2000 action plan. This is very much the message we've been conveying to our members since 1997.

It's important that you appreciate, however, that insurance responds to accidental losses. Computer date recognition problems, which in fact involve operating issues that have been or should have been known to businesses and their suppliers for many years, simply do not qualify in most insurance people's view as fortuitous events.

We believe we've addressed the year 2000 issue in two key areas. First of all, we've developed an educational campaign to inform businesses that their insurance contracts cannot be expected to automatically cover computer date recognition losses. The first stage of that campaign started with some newspaper advertisements the day after we last appeared before your committee, and they have appeared six times since then, in three national publications, in both English and French. We've also developed brochures on the year 2000 problem, which are made available to brokers and to our member companies for distribution to their clients. I can say that over the last two months or so about 150,000 copies of that brochure have been distributed.

In addition, we've developed optional model wordings for our standard commercial property and liability insurance policies to clarify covered limitations. Our companies are all aware of the availability of these wordings, and the end result is that there is a very wide range of choices, ranging from no specific year 2000 exclusion to a broad exclusion with hardly any exemption.

As well as looking at policy wordings, we have emphasized the need to ensure that business owners are aware of the difficulties they may encounter if nothing is done to assess and take action to avoid the potential impact of their own computers or the computers of their business associates being unable to cope with the year 2000.

Very early on, the committee we appointed to look into the issue decided that the industry was faced with a unique opportunity to develop a risk assessment tool that could be used by both brokers and underwriters to identify year 2000 exposures and to educate policyholders. This tool is a questionnaire that asks for generic types of information, and if it is properly completed, an underwriter looking at it should be able to determine whether the business is well organized and has matters under control or whether it hasn't.

The questionnaire is not intended to be part of the application for insurance. It's simply a risk management tool. It can be used as part of the policyholder's education effort, and it helps to determine if the year 2000 issue will impact the business. We have held seminars in Toronto and Vancouver, which have been very well attended, at which our suggested questionnaire and wordings were presented.

The Office of the Superintendent of Financial Institutions has done a great deal in drawing the problem to the attention of federally registered companies, and in my capacity as secretary-treasurer of the Property and Casualty Insurance Compensation Corporation, as I've met with provincial regulators I've suggested to them that they might want to circulate to their provincially incorporated companies some of the material that OSFI has provided. A recent meeting of the PACICC board of directors has also recommended to the provincial regulators that they should follow out that course of action.

TRAC Insurance Services, which is a leading insurance rating agency in Canada, has been asking companies about their plans. So I think it's fair to say that the industry is very much aware of the problem and is acting responsibly to deal with it.

Specific insurance for the year 2000 doesn't appear to be widely available. The premiums are high, but a large part of them may be refundable if losses occur. But quite frankly, it's only the very large organizations that could afford this. I think there are less elaborate versions, which are correspondingly less expensive. In any event, at this late date it may be impossible to buy this coverage.

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In closing, I want to stress that the year 2000 is a business risk that is completely foreseeable and therefore solvable if the proper action is taken early enough. Generally speaking, insurers believe that the risk is not fortuitous and therefore it's not an insurable risk.

Now I'm going to ask my colleague Gary Kapac if he would tell you what his organization has done and explain what he's found about the state of preparedness of insurers.

Thank you.

Mr. Gary Kapac (Year 2000 Project Director, Insurance Information Centre of Canada, Insurance Bureau of Canada): Thanks, Alex.

My role as year 2000 project director has two broad components. The first is to ensure that our own internal systems are year 2000 compliant. That also includes ensuring that our business dependencies with the insurance industry, which provide us with data, and our vendors, who provide us with the necessary products and services, are compliant. The second of these two components is to work with the industry to coordinate the sharing of information on combating the year 2000 problem.

Now, both of these provide me with insight into the preparedness of the industry, and I'd like to share that information with you today.

With regard to our own internal systems and business dependencies, one of our systems, the personal and commercial lines system, handles policies with three-year terms. As a result, we had to make that system compliant in mid-1996. That system would start to receive renewal policies for January 1997 that had year 2000 expiry dates.

Conversely, the insurance companies that submit that data had to make similar modifications to their systems in 1996. This indicates that there was early awareness and mobilization of resources in a number of insurance companies in 1996.

The second area is business dependencies. In February 1998 we began contacting insurance companies that submit data to us, and also the vendors who provide us with necessary goods and services. I'd like to review with you a summary of the responses we've received.

We contacted 214 insurance companies and 287 vendors. Our response rate was 88% with the insurance industry and 58% with the vendors. Of the insurance companies, 26% indicated that they were already year 2000 compliant, whereas only 18% of the vendor community indicated that they were compliant.

Now, it's interesting that a full 88% of the insurance companies indicated that they would have their critical systems compliant by December 1998, whereas only 24% of the vendor community indicated that their systems would be compliant. In total, 12% of the insurance companies have yet to respond, whereas 42% of the vendors haven't responded.

The 88% of the insurance companies that have indicated their critical systems will be compliant by December represent over 98% of the direct written premium in the insurance industry. So my observation is that these responses indicate the insurance industry appears well advanced in its year 2000 efforts.

The second broad area I'm involved in is working with the industry in terms of sharing information through a user group on combating the year 2000 problem.

In March 1997 we surveyed 11 of our member firms. These are all large insurers that represent about 32% of the industry's premium, or just under a third. We surveyed them to determine their preparedness for the year 2000 problem, and to determine what they would like in terms of coordination activities on our part.

All 11 of the firms we surveyed indicated that they were aware of the problem. They did have a year 2000 coordinator and a compliance project in place. They were aware of the resources and tools that they needed. They were working on the problem and targeting November 1998 for completion of their critical systems. In terms of cooperation, they indicated that they supported the sharing of information on issues and tools.

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As a result of the survey we conducted at industry user group meetings in June and November 1997, the topics we discussed were testing and staff retention. Those topics indicate that the firms participating were past the assessment stage of their projects, and they're well into fixing their year 2000 problems.

At that meeting in April 1998, the discussion broadened to include vendor and broker management. These are the external dependencies that firms have. At the time of the April meeting, the group indicated that they had adequately covered the issues that supported their goal of having their critical systems compliant by November 1998. They asked that I contact them again once the time had come to see about subsequent meetings.

So I contacted that group just recently. I've contacted about nine firms. All of them indicated that they are just completing work on their critical systems, and they're about to focus on the business interruption and contingency planning portions of their projects.

The topic areas this group has requested to date have mirrored the stages the firms are in in terms of their year 2000 compliance projects. So based on the latest request for discussing the business interruption and contingency planning portion of their projects, which is at the tail end of their projects, it would appear that these firms are well advanced in terms of their compliance activities.

My observation is that the property and casualty insurance industry is well on the way to solving the year 2000 compliance problems. This is supported by the February 1998 Statistics Canada survey. That survey indicates that the finance and insurance sector is the best prepared industry sector. They have the most firms taking action, and they have the most large firms taking action.

In conclusion, my observations are that there are four items that contribute to the preparedness of the insurance industry for the year 2000 problem:

First is early awareness. The fact is that they have date-sensitive systems, some of which had to be compliant in 1996.

Second, the industry is regulated, and year 2000 plans are being reviewed. I understand that the OSFI began reviewing these plans in 1996.

Third, there is a presence in terms of an active industry association. Both the Insurance Council and the Insurance Information Centre have been dealing with the industry on year 2000 issues.

Last, it is a competitive environment. There are a lot of insurance companies and lots of choice.

That concludes my remarks. We'll entertain questions after.

The Chair: Thank you very much, Mr. Kapac. We're going to hear from all the witness before we go to questions.

I'm now going to turn to the Canadian Bankers Association. I believe Mr. Mark Weseluck is going to begin their presentation.

Mr. Mark Weseluck (Vice-President, Banking Operations, Canadian Bankers Association): Thank you, and good afternoon, Madam Chair and committee members. With me is Frank Riddell, manger of project 2000 at the TD Bank and chairman of the CBA's year 2000 interbank working group.

We welcome this opportunity to provide the industry committee with an update on the banking industry's readiness for the year 2000, and we congratulate the committee for keeping attention on the importance of this issue. It is an issue we take very seriously.

Highlights and a full copy of my comments are included in the package we have provided to you today. Also included are the CBA's brochure, “Preparing Business for the year 2000;” a copy of the fast fax sheet entitled “Managing the Year 2000 Challenge,” which the CBA and the banks have used for inquiries from the media, government and other interested parties; and a list of the bank's Web sites, which contain helpful information on the year 2000 issue.

Since our first appearance before this committee last February, there have been many developments that we would like to mention today.

The CBA is committed to raising awareness of the year 2000 issue both among bank customers and the public at large, to assist small and medium-sized businesses in their readiness efforts.

The CBA developed a brochure entitled “Preparing Business for the Year 2000;” 165,000 copies have been distributed to date. This brochure is also accessible via the CBA's Web site, along with an easy-to-read piece, entitled “Managing the Year 2000 Challenge.” The latter offers consumers an overview of the banks' efforts and their progress to date.

In addition, with Industry Canada, the Canadian Institute of Chartered Accountants and the Canadian Chamber of Commerce we have co-hosted a nationwide series of seminars, often in partnership with local MPs. We would very much appreciate the participation of the MPs in making these seminars a success.

Thus far 84 seminars have been held, with 66,000 participants. They have all been extremely well received by participants, according to the results of an evaluation questionnaire summarized in the CBA's interim report on these seminars. This were circulated to you in October.

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As awareness of year 2000 is now quite high, we will be focusing on informing the public of the bank's efforts to be ready before the December 31, 1999. Lack of information will only breed uncertainty and inappropriate reactions. By being informed of the extensive measures being implemented to continue to provide service on January 1, 2000 and beyond, consumers will be better able to judge whether they need to take additional precautions.

During our February 19 presentation to you we discussed how the banks were addressing the year 2000 issue from a credit risk perspective. Since then the bank has continued to monitor the year 2000 readiness of their business customers on a case-by-case basis.

The risks associated with year 2000 will be assessed in the same manner as other credit criteria, including financial performance, industry prospects, market trends and management capability. In some cases the year 2000 exposure may be relatively small, while for others it may be significant. This will be factored in when assessing the customer's risk profile.

So far the banks have found that most business customers are well on their way to being ready for the year 2000. Account managers have been meeting with the small segment of customers that are further behind, in order to provide information on steps that can be taken to make systems compliant and to ensure contingency plans are in place.

The banks are also assisting customers by offering reduced-rate loans and other incentives to help complete the necessary system upgrades for year 2000 compliance.

As to the bank's own readiness efforts, the last time we appeared before you we reported that Canada's banks were at the forefront of attaining year 2000 readiness before January 1, 2000. The banks are in the process of completing the upgrading of their central and business unit systems impacted by year 2000, and are now shifting their focus to integrated and external testing and business continuity planning.

Since our last appearance, the banks' estimates of their year 2000 budgets have risen, on average, to $145 million to make central and business unit systems and applications compliant. Much of this increase is attributable to greater testing that will be done in 1999.

By the end of the process, the banks probably will have spent approximately $1 billion to ensure that banking services continue to be provided into 2000 and beyond. Roughly 50% of a bank's year 2000 budget for systems upgrades is allocated for testing.

The banks have nearly completed the renovation of all date-sensitive programs and applications, and are on their way to completing much of their internal systems testing by December 1998.

External testing with other industry members and third parties has already begun, and we are confident this testing will be completed by June 1999, with time to spare to handle any remaining system issues.

Starting in the summer of 1999 the banks will place a freeze on all system changes in order to prevent the renovations from being compromised.

Banks are generally operating on a six-level testing program. This involves everything from testing individual application programs to testing between depositing institutions and their third-party service providers and common networks.

The banks are nearing completion of their level one regression testing, level two Y2K testing of individual systems, and level three Y2K testing at time-machine tests. We are confident that these three testing levels will be completed by the end of the year. Level four testing, which is bank-wide, level five, which is point to point, and level six, which is street-wide, will be completed during the first half of 1999.

The banks have embarked on their final phases of testing to determine that all internal systems operate together and that links with external systems function smoothly. The most critical systems, defined as those having the greatest customer impact, that is, branch banking, self-service banking, funds transfers, point-of-sales service, will be subject to an additional level of testing to provide an added level of assurance that they will be fully functional in the year 2000.

Common networks are important to the banking industry for providing efficient and cost-effective services. Given this reliance, our interface experts have been diligently tracking the progress of these networks, such as SWIFT, the Canadian Depository for Securities, the Canadian Payments Association, credit bureaus, credit card associations and the Interac Association, to determine their readiness.

The banks have evaluated their own institutions' readiness in order to coordinate testing with these networks. Testing with these networks is under way to ensure that they and their participants are ready.

We expect that a key concern of consumers will be whether they have access to cash on January 1, 2000. The banks have been working very closely with the Bank of Canada to ensure that increased consumer demand for cash can be accommodated. This includes estimating the magnitude of a potential rising demand and planning for additional currency distribution. It also will be important to manage consumers' expectations so as to avoid unwarranted panic withdrawals.

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Another consumer concern is that the millennium bug will somehow erase account balances. This will not be the case, as the nature of the date problem cannot affect the existence of balances. Moreover, the banks conduct an extensive back-up of transaction and account information on magnetic tape on a daily basis. This will also be done on December 31, 1999, so in the event of a Y2K problem, calendar year-end records can be accessed. Calendar records can provide a stable foundation for starting the new millennium.

As a precaution that an unforeseeable problem occurs on January 1, 2000, the banks have begun work on their Y2K business continuity plans. The banks already have business recovery plans for dealing with any unforeseen service disruptions. These plans are being revised to address Y2K situations.

The banks are also in the process of developing a strategy to manage potential industry-wide disruptions arising in banking operations in order to maintain the delivery of basic banking services to customers. As well, we will be exchanging information with other key infrastructure industries to determine where there may be opportunities for co-operation.

In concluding, we would like to reiterate that the banking industry is committed to achieving Y2K compliance internally, as well as working with our borrowing customers to ensure they are aware of the importance of being ready for 2000. We will also be extensively addressing consumer concerns over the course of the next year.

It is also important that other key players inform the public of the efforts to resolve this problem. Given that the Y2K problem has implications for the myriad of systems and operations that affect Canadians each and every day, we therefore believe it is important that the federal government play a greater leadership role in advising the Canadian public and other countries of the measures being undertaken to address the Y2K problem and encourage domestic and international readiness.

Thank you, Madam Chair, for inviting us to appear before your committee.

The Chair: Thank you very much, Mr. Weseluck.

Mr. Riddell, were you just going to answer questions? Okay.

We're now going to turn it over to Mr. Thompson from the Office of the Superintendent of Financial Institutions.

Mr. John R. Thompson (Deputy Superintendent, Regulation, Office of the Superintendent of Financial Institutions): Thank you, Madam Chair.

It's a pleasure to be with you again today to talk about this very important issue that affects all Canadians. You will recall that when I was here with you earlier this year I spoke about the work of the Office of the Superintendent of Financial Institutions. It is an area of work that we have been very interested in and quite actively involved in for the last few years.

I indicated at my last appearance that OSFI would continue to work closely with the financial services industry in general, and with Canadian companies in particular, to be sure the financial services industry in Canada is as ready for this date change as we can be. I also said we would continue our work with other regulatory bodies, both in Canada and internationally, so our preparations are as coordinated as we can make them.

I will try to give you an update on our work during the last year. But before I do that, I'd like to just refresh your memory about some of the activities we had prior to my last appearance.

We began looking at the Y2K readiness issue during our examination cycle in the calendar year 1996. In October 1996 we issued a letter to all financial institutions we supervise to raise their awareness of this very important issue. At that time we also discussed the process institutions should be following to review their systems.

Last year we issued a Y2K best practices paper that described the phases institutions could follow to become Y2K systems ready. We again indicated that institutions should complete their renovations of critical systems and have made good progress in their testing by year end 1998.

At that time we also suggested that institutions should develop contingency plans; they should be looking beyond their own internal systems and look at their key client systems and systems of external providers. They should also, in many circumstances, be looking at their potential liability for claims that might flow from Y2K-related damage issues.

I'd like to give you a bit of an update on what we've been doing since my last appearance. In April we once again wrote to all of the regulated institutions to confirm that we hold Canadian management responsible for becoming Y2K-ready. We pointed out that this policy also extends to subsidiaries and branches of foreign parents that operate in Canada.

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In July we sent out a questionnaire to all of the companies we supervise, to assess their expectations for meeting the December 1998 target and for making critical systems Y2K-ready. This process was essential to us so we could gauge the current state of progress and readiness, and take appropriate actions we might have to take well in advance of 2000. There is some information coming out of that survey I can share with you, and I'll give you a couple of highlights.

First, the financial services industry does take the year 2000 systems readiness issue very seriously, and they've invested, as a group, roughly $2.5 billion on this project.

Second, I'm pleased to say the vast majority of institutions in Canada will have completed the renovation of their critical systems by this year end. We have identified a small number of outliers and will be monitoring their progress to get their systems ready over the next year. We think this is quite a manageable problem for the industry at large.

In terms of contingency plans, most companies recognize the need for such plans but many have not yet completed them. This is an essential step that should not be omitted, regardless of how confident the institutions feel about their own systems' readiness.

We have also noted the review of the Y2K preparedness of systems external to the institutions—major business clients, re-insurers and counter-parties and the readiness, testing and linkages—is inconsistent across the industry. This issue clearly needs greater attention. In some industry segments, reviews of counter-parties are well underway. In other segments, the reviews of external systems preparedness had not yet begun at the time of our survey.

Looking ahead, there are still many important things to do. One of our tasks as supervisors is to continue the analysis of our survey results and continue reviewing and modifying our on-site examination process. In this way we will be better able to address the progress and the testing work being done by regulated institutions, and deal with any other issues as they may evolve.

In particular, we feel contingency planning and the review of external interfaces are critical areas that must be addressed, and the solutions must be well in hand before any institution can conclude it is ready for 2000. To that end, we are also working closely with domestic and international regulators to share information and develop coordinated supervisory and contingency plans. For example, domestically we are working with other Canadian regulatory agencies and departments to confirm the Y2K readiness in areas involving systemic issues and the interconnectedness of institutions.

OSFI has also worked through the Basle Committee on Banking Supervision, the International Association of Insurance Supervisors, the International Organization of Securities Commissions, and the Joint Year 2000 Council to prepare and circulate a number of papers and coordinate a variety of other initiatives.

These initiatives have resulted in press releases, seminars, papers, communications and awareness programs and guidelines on testing. One of these projects involves a G-10 task force that is writing a paper on contingency planning. This had been scheduled for release at the end of this year, but it looks like it'll be early in 1999 before it's released.

One of OSFI's concerns is to safeguard depositors and policyholders from undue loss. To this end we want to make sure depositors and policyholders are protected by working with the industry in general and companies in particular to make sure they are doing all they can to meet their obligations in 2000.

A second objective is complementary, and that is to contribute to public confidence in the financial system. This is a focus we share with regulators and industry participants in other sectors, since public confidence depends on a healthy financial ecosystem—a web of interactions of considerable complexity. It is in these interactions, the transactions between institutions in all parts of the financial industry, that our ultimate shared challenges lie.

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This means companies, markets, regulators, clearing and settlement systems, power transmission facilities and navigation systems all have to work together to achieve the highest level of preparedness possible. Provincial regulators, federal regulators and regulators in other countries will all have to coordinate their efforts if we are to succeed.

Thank you, Madam Chair.

The Chair: Thank you very much, Mr. Thompson.

I want to thank all the witnesses for their very detailed opening statements.

We have about 25 minutes for questions before we move on to our second group of witnesses.

I'm going to begin with Mr. Pankiw.

Mr. Jim Pankiw (Saskatoon—Humboldt, Ref.): I have no questions at this time.

The Chair: Thank you.

[Translation]

Mr. Dubé, please.

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): I apologize for being late and for missing part of your presentation. Nevertheless, I have tried to make up for lost time by quickly skimming through your brief.

I would like to quote two articles that were published this week about the American experience. The articles state:

As for the Federal Reserve, it will be putting an additional $50 million in circulation.

By the end of next year, $20 billion will be siting in the government treasury—

One of our witnesses talked about what the banking industry was doing here. However, in the United States, the American banking industry is talking about $8 billion. Mr. Thompson, could you tell us how much money will be kept in the Canadian federal reserve?

[English]

Mr. John Thompson: The very short answer is no, I can't answer the question. That is a question I'm sure the banking community is discussing with the Bank of Canada. Do you happen to know the answer?

Mr. Mark Weseluck: I don't know the number. In terms of the process, we are trying to estimate expected demand. The Bank of Canada has said they stand prepared to try to address that, but they have not yet been prepared to put a number down in terms of what that need is.

I understand the way the Federal Reserve works in the U.S., they have to give a fair bit of advance notice for demand. It's not exactly that same process in Canada, so there is more time for determining that need.

[Translation]

Mr. Antoine Dubé: When do you think that this information will be available?

[English]

Mr. Frank Riddell (Manager, Year 2000 Project, Toronto Dominion Bank, Canadian Bankers Association): We have approached the Bank of Canada. We can't be specific on how much cash will be needed. We plan to do surveys to estimate how much extra cash will need to be in the system.

One of our mandates as banks is to allay public fears and minimize that, to say there is not a need to take so much money out of the bank. It's safer in the bank than under your mattress, fundamentally. So we have put together a CBA task force that will address the public relations aspect of this. We will try to allay public fears but at the same time estimate how much cash is needed in the system and convey that to the Bank of Canada.

[Translation]

The Chair: Mr. Dubé.

Mr. Antoine Dubé: Your answer leads me to my next question. An article appearing in the Financial Post is relatively optimistic about the many initiatives undertaken to resolve technical problems in the banking sector.

Nevertheless, we can't forget the psychological aspect and the panic that could spread throughout the population. According to this article, very little appears to have been done about this or, conversely, the steps that have been taken are not generally well known, so that there are concerns that panic may occur. I would like one of you to tell us what steps we should be taking to avoid this potential panic.

[English]

Mr. Mark Weseluck: It's certainly an area we have highlighted. We're working on a communications strategy to get the word out on the number of measures the banks are taking to be ready to address expectations of consumers as to the readiness, what they can expect starting in 2000.

We focused last year on issues for small business because that was more the focus, but a lot of the issues are coming up in the media now and there have been a lot of media interviews. We'll be getting out some form of information material to address those issues as well. That is definitely going to be a focus throughout 1999.

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Frank had talked to a couple of the measures that will be actually put in place to help customers as well.

Mr. Frank Riddell: I think a key message is that we can't satisfy the public until we satisfy ourselves, and we're not finished testing yet. Once we're finished testing we will tell the public that our systems have been fully tested. And it will be early next year when we can do that. Our goal is to have all our systems ready and tested by the end of this year. The banks are pretty well on target to do that. So once we have finished that testing I think we can send that message to the public saying your bank has tested the systems and they are working.

[Translation]

Mr. Antoine Dubé: This may appear trivial, but yesterday I was talking to people who play the stock market. This is not the case with me, because I'm not wealthy. These people, who play the stock market and deal with a broker, looked into this matter and they told me that they expected to see a wave of panic next year. This is the first time that I have really heard people talk about this. If the financiers are getting a bit excited, you can imagine the signal that this is sending to the rest of the country. If the stock market were to suffer an upset at the end of the year, perhaps in September, its instability could lead to a state of panic as described in these articles. This problem should not be taken lightly. I do not know whether or not you agree with me.

In my opinion, the answer you gave about the tests is unsatisfactory. In addition to the tests that we're thinking about doing on our systems, we should also be providing programs that are more explicit than the measures you intend to take.

[English]

Mr. Mark Weseluck: The one thing that markets don't like is uncertainty, and that's something we're going to be addressing right throughout the year, because it could be very disruptive. A key part is to keep iterating the various steps that are being made to make sure to address the issues of having the systems ready. That also goes to the issue of having contingency plans in place because of the recognition of the interaction or dependence on other infrastructure industries. We must keep iterating that there are these contingency plans in place as well to continue to provide that service to customers.

So throughout the course of the year you'll be seeing a lot of messaging from our industry. Hopefully we'll be able to work with the government and other key networks to get out that message of what's being done, because a lot of it is dependent on say the Canadian Payments Association, Interac, and credit card associations. Hopefully there will be a continuous message of the steps being taken to address those issues.

[Translation]

The Chair: Thank you, Mr. Dubé.

Mr. Antoine Dubé: Thank you.

[English]

The Chair: Mrs. Barnes, please.

Mrs. Sue Barnes (London West, Lib.): Thank you, Madam Chair.

Thank you for being here and also for all the hard work all of your organizations must be involved in. I think it's mind-boggling when you think about the complexity of this and how many hours have to go into it.

First of all, to the banking association, we heard from OSFI talking about the G-10 and you all have banking arrangements around the world. My fear isn't so much about you being ready, but of some of the transactions globally being able to accommodate this. What's being done on that front?

Mr. Mark Weseluck: There are a couple of levels we're working on. At the CBA we have a group that actually is looking at the various payment systems. There are about 200 systems around the world that you can get information on, either through the Bank for International Settlements, the Internet, or a variety of sources. That's being summarized and then used internally by the risk managers to assess the levels of readiness—how we assess those—and then they can assess if they have exposures in those countries.

Also, the various banks have correspondent banking relationships with banks in other countries to help conduct business. In those cases they have been corresponding with those banks to assess their readiness, because they're reliant on those banks to finish the transactions.

From what I understand, there will probably be tests throughout the year and during the first days of the year 2000 with nominal amounts of transactions to see whether these can be processed. So that's under way. And then we're also keeping in touch with the regulators in terms of their assessment with their counterparts at the regulatory level of their country's readiness.

Mrs. Sue Barnes: Okay.

I want to switch over to credit cards, again for the banks. I noticed that when I got my renewal on my credit card it was only a one-year renewal. The reason given was that all the other organizations at the other end may not be ready yet. Canadians are big users of credit cards. On that level, where are we on readiness?

• 1615

Mr. Frank Riddell: We are now issuing credit cards with 00 expiry dates on them. They are accepted in Canada. Canada is 99.5% okay for accepting these cards. The rest of the world varies.

Visa Canada restricted the banks from issuing the cards until late last year because of the readiness of the rest of the world. They took off that restriction, and we have had very few complaints of credit cards being rejected because of 00 expiry dates. Where there is a complaint it's reported to Visa International and they deal with the bank that is not accepting 00 expiry dates. It's being dealt with very seriously.

Mrs. Sue Barnes: When did that restriction come off?

Mr. Frank Riddell: I think it was October last year. Some of the banks did not issue cards beyond that time because they were not fully comfortable with world readiness.

Mrs. Sue Barnes: I must have one of those cards.

Mr. Frank Riddell: I work with TD, and we did not start issuing until May of this year.

Mrs. Sue Barnes: Okay. Over to Mr. Kennedy, please.

In your closing comments you use the words “uninsurable risk”, which was not in the printed text of your material here. I'm trying to take it down to the level of the average homeowner. I got something again in the mail in the last couple of weeks, where my home insurer asked, “Are you ready for your Y2K?” It didn't say too much more than that, but just put the words out there. But it didn't say whether this will affect your freezer if you have a computerized heating system. It didn't ask what other computerized systems you have in your house, how many computers you have operating here with all your personal data stored, or whether anyone has a medical device embedded in their body. So there are a few questions I would like to ask you.

First of all, by the jargon of “uninsurable risk”, to what level are you prepared to take that? Let's just go down to personal insurance policies with people with medical devices. What changes have been made there? That's my first question.

I have a few more questions, but how much time do I have?

The Chair: You have five minutes. This is your last question.

Mrs. Sue Barnes: That's too bad. We'll start with this one.

Mr. Alex Kennedy: The exclusionary wordings that were developed by the industry have all been for commercial property and liability policies. We don't know to what extent, but we're not anticipating that many companies will put exclusions in homeowners' and tenants' forms. We don't know for certain, and obviously it's an individual company decision, but the indications are that most companies are probably not going to put exclusions in.

My colleague, John Mitchell, is much closer to these wording issues than I am, so I would ask him to comment.

Mr. John Mitchell (Year 2000 Officer, Insurance Bureau of Canada): Yes, certainly.

Just addressing the home side of it, because you specifically mentioned that, there are a few companies that have in fact introduced a similar type of exclusion, or they are doing so, as they renew policies. The object of this is really to deal with losses of property rather than losses of person, because the home insurance really isn't covering personal injuries in a direct way.

The kinds of things that might affect the home insurer is perhaps a loss of electricity. He may have a repeat of some of the circumstances of the ice storm. If that is of short duration, it probably will be an inconvenience. If it's of long duration, it can of course have all sorts of complicating consequences for pipes freezing, people trying to thaw them and setting houses on fire, this kind of thing.

The exclusion generally is to remove doubt, if there is any, that the cost of fixing a computer to make it do the right thing with the date isn't something that's an insurable risk. This is really part of owning a computer, part of maintaining a system. You have to upgrade. You have to make sure you bought something that works. What often, and probably, isn't excluded are losses that might flow from that because of some malfunction, something didn't happen or something didn't switch off, and something like fire occurs. Then I think most policies, even with an exclusion, would not be likely to exclude that.

• 1620

The Chair: Thank you very much, Mrs. Barnes.

Mr. Jones.

Mr. Jim Jones (Markham, PC): Thank you, Madam Chairman.

It seems like a lot of the methods of getting feedback or getting information out there are surveys, questionnaires, and brochures. But does OSFI have any audit capabilities to go and audit these financial institutions or the insurance companies to make sure they are in fact doing what they say they're doing?

Mr. John Thompson: Yes. In fact we do on-site examinations of all banks each year, all life insurance companies each year, and all property and casualty companies approximately once every other year. As a standard part of the examination of each company, we do look at the year 2000 readiness programs. We look at the program itself, and we look at the progress that is being made to actually achieve that program.

So on the one hand we look at the plans, the quality of the people, their timetables, how they compare with their peer group of companies, but we also test them against their peers and what we think is a reasonable schedule. We also look at the degree to which they report the results of their progress to the board, because ultimately it's the board that has to be responsible for this particular issue.

Yes, we do check it on every examination. It's a standard part of our examination now.

Mr. Jim Jones: You said a lot of things, but do you also do a test to see if their systems actually do what they thought they would do?

Mr. John Thompson: If we have any doubts, we would get an external systems person to actually carry out that kind of a test. We would be looking really at the internal documents. We would test our confidence in the work through the discussions with management, review of documents, and the disclosure that's going to the board and that kind of information. If we felt there was still some doubt as to the quality of that work, then we do have the authority to call in outside experts. We haven't yet had to do that, but we do have that authority.

Mr. Jim Jones: So if somebody is not doing what they said they were doing, what actions or steps can you take?

Mr. John Thompson: This is a standard problem, not dealing simply with this particular issue. We have a variety of supervisory powers at our fingertips. We can, at the lowest level, include our findings in the examination report that we give to the company after we've done our examination. That goes to not only senior management but to the audit committee, or perhaps even the whole board, so that at least the audit committee is aware of what's going on, what our concerns are. We would expect them to submit back to us a plan to remedy the problem, and we would monitor progress against that remedy with the expectation that it be fixed by the time we do our next examination—in the case of a bank, the next year.

In the extreme, if a company—and thank goodness there aren't any companies in this category—refused to believe it was a problem, we have the supervisory authority to be able to take some very strong action against that company, even down to giving them a direction of compliance, which they cannot ignore. They have to take action on a concern if we put it in that category. We have substantial powers in this area.

The Chair: Thank you very much, Mr. Jones.

Mr. Shepherd, please.

Mr. Alex Shepherd (Durham, Lib.): Thank you.

Back to Mr. Kennedy on your discussion about this issue not being a fortuitous situation, I'm looking at more a business application and maybe people who have bought business interruption insurance. Are you saying that if they are in possession of non-compliant equipment and there's a claim for damage resulting out of that situation, it's not insurable?

Secondly, what if they are totally compliant, but the hydro goes off, their pipes freeze up, and so forth? Are they not covered?

• 1625

Mr. Alex Kennedy: I'm sure there will be no problem dealing with a claim where the hydro goes off. It's only if it's specifically related to the year 2000 issue, and that would be an awfully difficult thing to establish in many circumstances.

Mr. Alex Shepherd: If the hydro going off was related to the year 2000 problem, they're still covered. Is that true?

Mr. Alex Kennedy: No, not if it was specifically related.

Am I right, John?

Mr. John Mitchell: I think the way business interruption insurance works is it's responding to a loss of business income that is caused by damage to some property by a peril it's insured against. So generally speaking, if the power goes off, that may not be something that actually causes any damage.

I guess you could take an example; that might be easier. If the power goes off and you have no telephone for a while, you may be losing some business opportunities, but you don't actually have damages yet. If, on the other hand, you had something like a cold storage operation where the power was off for three weeks, you probably would have some damage to stock. So it depends a little bit on what actually is the consequence of the power going off. In any case, the onus of proving that this was indeed to do with the year 2000 rests with the insurance company, and in the event of a dispute, they would have to be able to show conclusively that, yes, this was indeed caused by this peril. So it's really excluding losses that arise out of the cost of correcting computerized chips, that kind of thing.

Mr. Alex Shepherd: Okay, I'm still not clear. Maybe you can clarify this for me.

I have a whole raft of computer equipment, and my whole business depends on processing documents at the right time. Ontario Hydro, for whatever reason, pulls the plug on me and it's down for a month. The reason Ontario Hydro pulled the plug is that their systems were not compliant. Is my business insured, yes or no?

Mr. John Mitchell: I don't think I can give you a yes or no, because there isn't a single exclusionary endorsement. But I would think unless you've arranged a special kind of insurance recognizing your vulnerability, there's a good chance that wouldn't have been covered anyway, whatever caused it.

Mr. Alex Shepherd: So in reality what you're saying is that because it's not a fortuitous event, in fact all business interruption insurance claims related to Y2K specifically, directly or indirectly, would be invalid.

Mr. John Mitchell: What I'm really saying is that a lot of the kinds of things you're talking about would not have been covered, whatever caused it, because it's simply a computer down, and that isn't likely to be a peril.

You may be able to arrange coverage that specifically addresses your exposure. But if you're in that kind of a business, you shouldn't just believe that everything will be fine. It may be foolish to believe that in the first place, even without year 2000.

Mr. Alex Shepherd: So do you think policyholders are fully knowledgeable about that, that they're not insured for this event?

Mr. John Mitchell: I can't speak for what policyholders actually know. I do know that most, if not all, of the brokers that are dealing with the businesses— this is really where the business gets dealt with between the insurance broker and the client. The insurance brokers are certainly raising these issues, because to fulfil their responsibilities, it's important that they give good advice to their clients.

Mr. Alex Shepherd: Is that something that your members would consider doing, actually sending some kind of notice out to the individual policyholders and say they're not covered specifically for this event?

Mr. John Mitchell: I would think this is done regularly. I can only say I would think, because we don't look after brokers, but I have certainly seen material that has been sent out by brokers that is drawing this issue to the attention of say us as a policyholder, buying our own insurance.

The Chair: Thank you very much, Mr. Shepherd.

I want to thank the witnesses for being with us. We have another group of witnesses now. This has been a very interesting discussion. I'm sure could have gone on for a lot longer, but as the questions have been asked, you are aware that we are very much depending on you to be at the forefront of this industry, and we appreciate you taking the time to be with us and to continue to notify as many people as possible. Thank you very much.

• 1630

While we're changing places, Mr. Pankiw has a motion he wants to put on the table. Did you want to make your motion?

Could I have the attention of the committee members? While we are changing witnesses, we also have a motion we need to deal with. It's listed as the very last item on your agenda, but we're going to deal with it now while we are changing witnesses.

Mr. Jim Pankiw: I move that the Minister of Industry be requested to appear before the committee at the earliest opportunity, but no later than December 2, 1998, to address part III of the estimates and the performance reviews of the department for the fiscal year 1998-99.

I have just a couple of comments with regard to that motion.

The Chair: Mr. Pankiw, are you aware that we are doing supplementary estimates tomorrow and that tomorrow is the last possible date to do them? The last allotted day for opposition is December 1, which you chose. That means that in order to report it back to the House, we have to report it back on Thursday, three days before the last allotted day.

Mr. Jim Pankiw: Yes.

The Chair: It's impossible to have the minister here tomorrow. We have already scheduled supplementary estimates.

Mr. Jim Pankiw: Then I would amend the motion to read “the minister appear at his earliest possible convenience”.

The Chair: But the minister's not coming tomorrow. I'm a bit confused.

Mr. Jim Pankiw: I said that he appear on the performance reviews.

The Chair: Do you mean not later than December 2?

Mr. Jim Pankiw: I'm saying yes, we'll change December 2 to “at his earliest possible convenience”. So that date would be extended to whenever he's able to appear.

The Chair: Would you like to reread your motion?

Mr. Jim Pankiw: I move that the Minister of Industry be requested to appear before the committee at his earliest possible convenience to address the performance reviews of the department for the fiscal year 1998-99.

The Chair: Can you do this very briefly, Mr. Pankiw?

Mr. Jim Pankiw: Yes, it will be quick.

The Chair: If not, we'll be coming back after the vote for our witnesses.

Mr. Jim Pankiw: Performance reviews were only introduced as part of the process two years ago, and the minister is called to discuss the main estimates, part II, which show how the department will spend tax dollars during the next fiscal year. The performance reviews tell how well this money was spent. I think it's reasonable to ask the minister to appear before the committee to discuss performance, and all we're asking for is one hour. Having the minister discuss departmental performance in addition to spending priorities will establish a new level of accountability. Also, I suggest that government MPs should see this as an opportunity for the minister to gain feedback on the direction of the department while there's a chance to make adjustments to the next year's plans.

I'd also like to point out, particularly to government MPs, three parts of the 1993 red book that stated that, first, committees will also be given greater influence over our government expenditure; secondly, we will give more power to individual MPs by providing more free votes and more authority for parliamentary committees; and finally, open government will be the watchword of the Liberal program.

So allowing MPs the chance to question the minister about departmental performance in the preceding budget year means greater transparency. It could be in all of our best interests to have that.

(Motion negatived)

The Chair: Thank you, Mr. Pankiw. That was brief.

Mr. Jim Pankiw: Mr. Peric voted twice.

The Chair: We'll keep that in mind for next time.

I want to welcome our next round of witnesses to the table. We're very pleased to have the Department of Industry, Stentor, the CRTC, Teleglobe, and Telesat Canada.

I know the clerk has been very diligent in asking everyone to keep their statements to no more than five minutes. I will have to be extremely forceful and cut you off if you are longer than five minutes, so try to keep it to about three minutes. We all have your briefs. They don't have to be read to us word for word. Please just summarize what you're submitting to the committee. That would be the best way to do things.

That being said, we'll start with the Department of Industry. Hopefully Mr. Binder can set us in the right direction.

• 1635

Mr. Michael Binder (Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry): Thank you, Madam Chair.

I don't have a prepared statement, so I'll try to be very brief.

The Chair: Good.

Mr. Michael Binder: Let me start by introducing our director general of radiocommunications and broadcasting regulations and our executive director of Task Force Year 2000.

It's a pleasure to be here today. To us it's really a milestone. We've been worrying about this issue now for the last three years. We've been trying to do everything we can to raise the level of interest and awareness in this particular problem. You'll remember that it was our minister, Minister Manley, who set up the Jean Monty task force. We chose the CEO of BCE as the chair of this task force because we thought that telecommunication was crucial to this business, and they've done a really fine job in putting together two reports, which we tabled and distributed widely.

We were very pleased to see your work in addressing some of the recommendations the task force put in front of you in raising the awareness and visibility of this issue. You've done a really fine job in dealing with some of the issues, bringing the industry people in front of you, and in fact forcing this issue into the corporate world.

We've done two surveys that kept track of the performance, and we have launched some pretty aggressive awareness programs, which will get all of corporate Canada understanding the issues and the challenges ahead. We continue to monitor performance. We are now focusing particularly on the testing results of systems, and we are doing everything physically possible to continue to raise the awareness of what needs to be done.

Let me stop here, and we'll be glad to answer questions and to listen to some of our other colleagues who can report on the status of the industry.

The Chair: Thank you very much, Mr. Binder. We appreciate the fact that was very brief.

I'm going to turn now to Stentor, Mr. Alex Giosa.

Mr. Alex Giosa (Vice-President, Network Operations and Year 2000, Stentor Canadian Network Management): Thank you, Madam Chair.

It is my pleasure to be here with you today. My name is Alex Giosa, as I've already been introduced. I'm the vice-president of network operations at Stentor Canadian Network Management. I also hold the executive accountability for managing the year 2000 program on behalf of the alliance. I am fortunate to work within a company and an industry that takes very seriously our commitment of providing telecommunication services.

The Stentor companies manage a complex telecommunications system, and I am proud to say that it is virtually always on. Our network reliability exceeds 99.9%. I am sure that's why you and I take it for granted that when we pick up the telephone, the dial tone will be there and we'll be able to complete our call.

This kind of dependability and reliability are not reached by accident. It's a result of our success in managing three critical areas: first, a state-of-the-art, robust network; second, meticulous and continuous network monitoring, testing, and upgrading; and third, well-defined emergency response procedures in the event of failures. This focus on reliability within Stentor is in fact part of our corporate culture and reputation.

So with this legacy and cultural mindset, the alliance has a strong foundation from which to address the challenge posed by the Y2K bug. We are leveraging our core competency in our year 2000 program. Let me share with you what I characterize as the three pillars of our program: one, an exhaustive program that thoroughly addresses assessment, conversion, and testing; two, collaboration and cooperation in dealing with our critical suppliers, partners, and customers towards effective solutions; and three, prudent steps to assess risk and establish additional measures necessary to address the unique characteristics of the year 2000 challenge.

At Stentor our goal for the year 2000 is a simple one: to provide uninterrupted service to all customers. I am pleased to report that we are on track to achieve that goal. Our inventory and assessment phases are now complete. Our conversion and remediation phase is making excellent progress. We have prioritized our work so that service customers depend upon, such as local and long distance toll-free data and operators' services are completed first.

• 1640

For these services, we are on track to have the necessary year 2000 conversion and remediation complete by the end of 1998. In fact, our conversion is at 85% for the public switch telephone network and 90% for our data networks. We have made some choices in prioritizing that work, and we expect to complete all of the work by June 1999.

Our comprehensive testing program is producing excellent results. It's confirming that our remediation work is indeed addressing the exposure of the Y2K bug. For example, earlier this month we completed the engineering analysis and validation testing of our data networks. Each test passed without impact to our network or to the data being transmitted. As we introduce new software and hardware versions into our network, our program guidelines require that those elements be retested. This is our way ensuring that the remediated elements remain Y2K ready.

Conducting this level of testing is a huge task. We have been able to share this vast amount of work among all Stentor partners across Canada. We have also been able to partner successfully with other businesses in the industry. Through the Year 2000 Canadian Telecom Industry Forum, we are conducting full interoperability testing for both wire line and wireless services. These tests will be conducted within two lab facilities in Canada and six in the United States. We will complete this work in February 1999.

We have also been very active at the global level, as well. We're in discussion with international carriers to test out our networks internationally.

As I mentioned earlier— Is that it ?

The Chair: That's it. Thank you very much.

We'll go to questions, but if you have one final comment you want to make, do it briefly.

Mr. Alex Giosa: Our program is on track. We have three pillars: there's the renovation work, the testing, and we're taking prudent steps. We're confident we'll be ready for year 2000.

The Chair: Thank you very much.

I'm now going to turn to the CRTC. We have Mr. David Colville with us.

Mr. David Colville (Vice-Chairman, Telecommunications, Canadian Radio-television and Telecommunications Commission): Thank you, Madam Chair. In the interest of time, I've provided you with a statement, which I won't read.

The two areas the CRTC is responsible for are telecommunications and broadcasting. In the area of telecommunications, we wrote to all of the telecommunications companies under our jurisdiction back in February to remind them of the concern of the issue and to try to heighten the awareness of this concern. Of course some of the companies, as it has already been indicated, were well on their way to dealing with this problem.

In any event, we followed that up by direct contact with more than a hundred of the companies. The result of all of that activity is that we've got indications from all of the companies we contacted that they expect to achieve compliance for all critical systems by June 1999, which has been indicated, or in some cases even earlier. So it would seem that the telecommunications companies have taken this issue seriously. They have taken action to deal with and overcome the problem.

I might just note that with respect to the broadcasting undertakings, we've been actively working with our colleagues at Industry Canada in dealing with this issue. We had an agreement. In view of the fact that Industry Canada would be dealing with all of these same companies—this is because they all have radio licences under the Radio Act—we didn't want to be contacting them twice on the same issue. So we had an agreement with Industry Canada that they would deal with the broadcasting undertakings while we dealt with the telecommunications undertakings.

Thank you very much.

The Chair: Great. That was perfect. Thank you very much, Mr. Colville.

I'm now going to turn to Teleglobe. We have Mr. Demers.

Mr. Jacques Demers (Vice-President, Technical Corporate Projects, Teleglobe): Thank you. I'm Jacques Demers. I'm the program manager for the year 2000 issue at Teleglobe.

• 1645

Basically, I've supplied two versions, one in French and one in English, of a small paper that I'll go through very quickly. This is first of all just to situate Teleglobe, which is an international telecom carrier. We own and operate a network of satellite and submarine cables that's ranked second overall in terms of its global reach. Teleglobe was, prior to October 1, 1998, the exclusive international carrier for Canada since 1950.

Teleglobe is taking Y2K very seriously. We established a full-time team dedicated to this in 1996. This covered both IT networks. We're progressing extensively to achieving most of our compliance on our critical systems by the end of this year.

The area where we're trying to reduce uncertainty is really at the level of the international carrier. At that level, we have undertaken a major review of our interconnecting carriers worldwide to ensure they will be ready for the year 2000.

Maybe just to save time I'll give you our status. We completed the inventory. The assessment is about completed. Supplier compliance will be completed by the end of this year. Conversion and unit testing of all our major critical systems will be completed by the end of this year. The rest will follow in the first quarter of 1999. Interoperability and testing contingency planning will be done by the second quarter of 1999. We're an active member of the Canadian Telecom Industry Forum. We participate in the testing and contingency planning group.

The Chair: That was great.

Now we'll go to Mr. Gordon Fraser from Telesat Canada.

Mr. J. Gordon Fraser (Vice-President, Network Services, Telesat Canada): Good afternoon. My name is Gord Fraser. I'm vice-president of network services for Telesat Canada.

Like many other companies in the room, we have taken our obligation in resolving year 2000 compliance issues very seriously. In fact we started our program early in 1997.

I'll just give you a little bit of background on Telesat. Our company is 30 years old, so it's relatively young. In our business, technology has a half-life of about six years, so we really don't get the opportunity to have a lot of legacy systems.

Like many others, we have gone through inventory, testing, remediation, and more testing stages. We're in the process of establishing our contingency plans for the different services we carry.

In broad terms, we have three main areas: satellites; ground systems, which is really our networks; and our internal business systems.

Now, our satellites themselves are not dependent on a calendar date, so they are somewhat impervious to the millennium change or century rollover. The control systems for those satellites are somewhat more dependent. For the most part, they're year 2000 ready at this point. We have a couple of minor issues to resolve. Those, however, should be completed by the first quarter of 1999.

As for our network system, we still have some work to do. However, we have the attention of our suppliers. Our staff are focused on the objective. At this point in time, we feel we'll be finished by the second quarter to the third quarter of 1999.

Within our internal business systems, we have approximately 300 customers at Telesat. If it came down to it, we would send our bills out by hand. But I think we're certainly well on our way to achieving our objective by the third quarter of 1999 as well.

The Chair: Thank you very much, Mr. Fraser. That's great.

Now we have 25 minutes for questions, beginning with Mr. Pankiw. Do you have any questions, Mr. Pankiw?

Mr. Jim Pankiw: Not at this time.

• 1650

The Chair: Not at this time.

[Translation]

Mr. Dubé, have you got a question?

Mr. Antoine Dubé: I will wait.

[English]

The Chair: He doesn't have any questions.

Okay, we'll start with Mr. Bellemare.

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Thank you, Madam Chair.

Teleglobe just finished telling us that the satellite system is not dependent on calendar dates in their embedded chips. Did I hear that right?

Mr. Gordon Fraser: It was Telesat. It's correct that the satellite itself is not dependent upon the calendar date.

Mr. Eugène Bellemare: Are there any satellites that are dependent on calendar dates that you know of that may belong to other organizations and may impact on our communications?

Mr. Gordon Fraser: I can't comment on other satellites. There are none that I am aware of.

Mr. Eugène Bellemare: Okay. Then you said there were a couple of minor issues to resolve. What are these issues?

Mr. Gordon Fraser: Although the satellite itself is not dependent upon a calendar date, some of the hardware used to control the satellite on the ground has some embedded microcode in it. That has been identified. We're in the process of making changes, and we expect it will be completed by the first quarter of 1999.

Mr. Eugène Bellemare: Thank you.

To Industry Canada, in the government's response to this committee's recommendation 13, we were informed that your ministry had written to more than a thousand public security organizations, such as police, ambulance services, and so on, more than 900 radio broadcast certificate holders, and more than 93,000 private license holders for their Y2K plans. What are the results of that writing?

Mr. Michael Binder: We're now starting to get some replies. I'll ask Jan Skora to give us a few more details.

Mr. Jan Skora (Director General, Radiocommunications and Broadcasting Regulations, Department of Industry): Thank you.

Yes, you're right that we did write to 93,000 licensees—this is the vast majority of holders of licenses—to inform them and attempt to educate them on the year 2000 issue.

Of the smaller number of letters we sent out to public safety services and broadcasters, as Mr. Binder indicated, we have started to receive responses. Clearly, the larger organizations that have responded have indicated that they are aware of this issue and are working on it.

We found that the smaller organizations—you must realize that we wrote to a number of smaller municipalities, smaller police organizations, etc.—have not been so quick to reply. Consequently, this week we sent out additional letters to the organizations that have not replied. It's our intention to follow up with them, starting with the larger organizations and then moving down to the very small organizations, to get a clear indication of their awareness of the year 2000.

Mr. Eugène Bellemare: Do you have any regulatory powers? When you wrote to these 93,000 private license holders and 900 radio people and so on, did you have regulatory powers over them?

Mr. Michael Binder: We license anybody who uses the wireless service.

Mr. Eugène Bellemare: Have you put them on notice that if they don't answer you within a certain date, you'll you pull their licence?

Mr. Michael Binder: We mentioned that we expect them to address it. They know that—-

Mr. Eugène Bellemare: Did you notify them that if they don't do it on a proper time schedule—-

Mr. Michael Binder: We felt with the first one that you don't need to use the big stick because the licences are renewable—-

Mr. Eugène Bellemare: When do you use the big stick?

The Chair: Mr. Bellemare, please let him finish.

Mr. Michael Binder: The licence is renewable every single year, and every year it might not be renewed. So they're fully aware of our regulatory powers.

• 1655

With the first one, we were attempting to explain the problem. Some of them had never heard about the problem. The big companies were fully aware of the problem and are taking all reasonable efforts to fix the problem.

Mr. Eugène Bellemare: Industry Canada, are you Y2K compliant as of today?

Mr. Michael Binder: That's not my responsibility. This is in our internal CIO. Our office is in charge of what's in the outside world. In other words, we're dealing with the industry.

Mr. Eugène Bellemare: Is your section Y2K compliant?

Mr. Michael Binder: You mean our own section in terms of our own thing? It's on the way to becoming Y2K compliant.

Mr. Eugène Bellemare: We'll all on our way there. How close are you to the target?

The Chair: This is your last question, please.

Mr. Eugène Bellemare: How close are you to the target?

This is before I ask my last question.

The Chair: That was your last question.

Mr. Eugène Bellemare: Do you know? Go ahead.

Mr. Jan Skora: We have carried out extensive testing on the licence system we have. We've gone through every single one of our licensing and financial systems. We are a matter of two or three months from being Y2K compliant in all of those systems.

The Chair: Thank you very much, Mr. Bellemare.

[Translation]

Mr. Dubé, please.

Mr. Antoine Dubé: My question or questions deal with compliant equipment. Many companies are saying that their products are guaranteed to be compliant. In your opinion, and here I am referring particularly to the officials from Industry Canada, is this in fact the case? Do you systematically test all equipment, even new equipment, that is advertised as being compliant?

Mr. Michael Binder: If I understood you correctly, are you talking about our systems?

Mr. Antoine Dubé: No, systems—

Mr. Michael Binder: Oh, private sector systems.

Mr. Antoine Dubé: Yes, in the private sector.

Mr. Michael Binder: It's not up to us to certify that their products are compliant. It is up to the private sector to provide this guarantee. We are not responsible for checking whether or not their products are compliant; our job is limited to ensuring that we have prepared an action plan and that we have implemented a program to test all of the equipment. It's not up to us to guarantee the process.

Mr. Antoine Dubé: Your comments concern me somewhat. I have confidence in all of these people and in the big corporations, but there are smaller companies that distribute and sell telecommunications equipment that are often labelled as being "guaranteed compliant". With what are these products compliant?

Furthermore, if you're telling me that Industry Canada is leaving it up to the private sector to discipline itself, well, I am feeling somewhat worried, unless the private sector representatives can tell me, today, about procedures that will guarantee us that the new equipment will really be compliant.

If I were to purchase products today that were labelled as being "guaranteed compliant", and I heard Industry Canada state that it had no responsibility whatsoever in this regard, I must confess that I would not feel very confident.

[English]

The Chair: Mr. Dubé, perhaps Mr. Giosa could reply to that. Stentor represents a group of clients who would sell telecommunications equipment. They're probably making representations that they're year 2000 compliant.

[Translation]

Mr. Antoine Dubé: All right.

[English]

Mr. Alex Giosa: We start with vendors' representations of their products. We start with their test results and all critical components of our network. We repeat our own testing and do our own analysis to confirm their readiness. Of course we assemble a number of components and operation support systems to eventually deliver service to our customers. So we also test the aggregate as well.

[Translation]

Mr. Antoine Dubé: What do you do with equipment that is not compliant?

[English]

Mr. Alex Giosa: We work with the vendor until we resolve the issue to our satisfaction and can assure ourselves that it's ready for Y2K.

[Translation]

Mr. Antoine Dubé: Ah!

[English]

The Chair: Thank you.

Mr. Murray, please.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you, Madam Chair.

I guess my question is also for Mr. Giosa. I know your responsibility is networks, but are you aware of any problems with people's telephone sets at home, for example? I know your central office seems to be well on the way to being tested, and you seem pretty certain that they'll be working fine, but what about telephone sets people have in their homes? Do you know if there's cause for concern there?

• 1700

Mr. Alex Giosa: My accountability, sir, would be the common infrastructure mainly. Each of the companies has a program to validate and confirm that the sets they're selling to their customers are year 2000 ready as well, and each of the companies has had a communication program to provide that information. Some of it is on public web pages.

Mr. Ian Murray: Okay, but if you had purchased a telephone from who knows where, not necessarily through one of the Stentor companies, then you may have a problem. Is that a fair statement?

Mr. Alex Giosa: They would have to be validated from the supplier, and that type of information is readily available.

Mr. Ian Murray: Okay.

I also want to ask you about your dealings with international carriers. Are there any international standards? Has anyone tried to set up international standards for year 2000 compliance?

Mr. Alex Giosa: One of the very critical aspects of our program, of course, is our test scripts and how we analyse the test results and which tests we select to put through our Y2K stress testing. There are commonly accepted industry standards. We have 24 standard dates that we test. Those are commonly accepted across the industry, globally.

Mr. Ian Murray: Do you have any concerns about offshore companies you may be connected with that may not be ready? Are you aware of any countries, for example, that may not be prepared?

Mr. Alex Giosa: Our priority, of course, has been to ensure that we are ready. That's been our focus over the last couple of years. We are in discussions with international carriers. I personally participated at a global summit in October where we had exposure to some of the wider global readiness, and there's an awful lot of effort under way.

Our strategy is to work with the carriers that are ready first with their different equipment provided by a variety of vendors to confirm that they will operate appropriately internationally, and then to move to those that are less ready. Of course we want to get as much readiness under our belt as possible.

What I've heard at sessions is that there are countries where very little information is available, so it's very difficult to make a statement on that. In Africa, for example, there is assistance being provided by the International Telecommunications Union to raise their awareness and assist them with developing programs. So the countries that are less ready are getting assistance, and we'll have to monitor their readiness going forward.

Mr. Ian Murray: Okay. Thanks very much.

The Chair: Thank you.

Mr. Demers, did you wish to respond?

Mr. Jacques Demers: Yes, just to add that Teleglobe interconnects with well over 280 carriers around the world, and we're in the process of assessing the readiness of those carriers. We're starting our third questionnaire round, and we have so far had a response rate of about 58% from these carriers saying that they have a plan. But our estimate is that probably only about 50% of the 200 have a serious plan, at least for now. The areas that are more problematic in getting information, which doesn't mean they won't be there, is really, by order of criticality, Central America, South America, Africa, and eastern Europe. These are the areas where we have a lot of difficulty getting information about their readiness plans.

The Chair: So you can't guarantee to us today long-distance calls outside of Canada.

Mr. Jacques Demers: To certain areas, definitely. With the advance of deregulation in many countries we're interfacing with multiple carriers, so we just need to have one that really works. This is part of our contingency planning exercise: to find one that works.

That's looking at the telecommunications aspect. We're not looking at how the country will survive. Maybe telecommunications will fail because other things have failed. We're looking at the readiness of the international carriers.

• 1705

The Chair: Thank you very much, Mr. Murray.

Mr. Jones, no questions?

Mr. Bellemare, you had another question?

Mr. Eugène Bellemare: I will continue with Mr. Binder. We were talking about Industry Canada being compliant. Specifically, when do you believe that Industry Canada, your section, is going to be compliant? Do you have a target date?

Mr. Michael Binder: We set up a target date of probably around February of 1999 when we will all be compliant. That means tested and complying. My hesitation is we're finding that after we test systems, we find new glitches. So we have left ourselves a little bit of wiggle room here to make sure that we are indeed compliant. We're doing it from the most critical system to the less critical system. We're going with the most important system first, and we go down the line.

Mr. Eugène Bellemare: I believe the Auditor General once reported that of all government contracts vis-à-vis IT high tech, only 16% provide results on time. Now that gives 84% that are never on time. Given that fact, waiting for the first quarter to make that decision you've just discussed, isn't that cutting it a bit thin?

Mr. Michael Binder: We have not done it via contracts. These are our own people, who know our own systems. We've been working on it now for—

A voice: Two years.

Mr. Michael Binder: At least two years. So this is not a brand-new learning exercise for some consultant who is coming in from the outside. These are our own people who know the system, know it very, very well. We are now on target, according to our plan.

Mr. Eugène Bellemare: The good Samaritan law in the United States—you're aware of it?

Mr. Michael Binder: Yes.

Mr. Eugène Bellemare: Should we have it? If not, why not?

Mr. Michael Binder: This is a legal issue that the lawyers in the Department of Justice are looking at to see what we can do. Our constitution is different from that of the United States. Liability issues are provincial-level jurisdiction. The question is, what can we do in Canada? I would suggest that the Department of Justice will be very well qualified to answer that question.

Mr. Eugène Bellemare: Back to Telesat, what contingency plans do you have should your satellites or, as you underline, the control systems fail?

Mr. Gordon Fraser: Our satellites can be operated manually. That means that our operators can actually operate the satellites by equipment they have at their disposal. As well, what we actually use our control equipment for is to send, on an infrequent basis, commands to the satellite to reposition it. This can go for potentially two to three weeks without receiving a command from the ground segment.

Mr. Eugène Bellemare: Thank you.

The Chair: Thank you very much, Mr. Bellemare.

I have a question that follows up on Mr. Bellemare's question with regard to contingency plans. Mr. Colville and Mr. Binder, you're working with the television side and the radio broadcasting side. I'm wondering about emergency or contingency planning in particular for the television side. I know there are a lot of regulations in place on running those banners across programs. Is there any possibility that if we needed to do some type of emergency warning or banner, that would be allowed for January 1, 2000? Is there any type of planning in place? And the same with radio.

Mr. David Colville: There's nothing to prevent that happening.

Just to clarify, we were pursuing this issue with the telecommunications companies, and Mr. Binder's department was pursuing the issue with respect to the broadcast of television, radio, and cable. So we haven't followed up in terms of contingency plans with broadcasting companies, but I have with the telecommunications companies we pursued it with, to ensure that not only they were going to be compliant but that there was going to be a contingency plan in place in the event that there was a problem.

The information we've got back from all of the companies, the hundred or so companies, including all the Stentor members, was that in fact they would have a contingency plan in place.

• 1710

The Chair: Are you going to be privy to that contingency plan?

Mr. David Colville: Do you mean the details of the plan? We didn't ask them to provide us with the details of the plan; we simply asked them to inform us that they had a plan.

The Chair: Okay.

Mr. Binder.

Mr. Michael Binder: Just to be specific, there is a provision under the Broadcasting Act, section 26.2, I'm told, that allows the government, through the issuing of an order in council, to instruct the CRTC to actually impose a public service announcement on the broadcasters. It has to be under a national emergency or something very important, but you can actually use those powers to reach out in case of a contingency, an emergency.

The Chair: What does it take to get that order in council?

Mr. Michael Binder: It takes an emergency.

The Chair: Do you have to have a cabinet meeting to get that order in council?

Mr. Michael Binder: Yes, it's a cabinet decision, absolutely.

The Chair: So I guess I'm asking whether you have a real contingency plan in place. Is this going to be done before January 1? I don't want us to wait until January 1, 2000, because I know from my area, with regard to weather warnings and the difficulty we've had getting them across the television because of the CRTC regulations, we have some real difficulties. So are you going to have this plan in place?

Mr. Michael Binder: We're now developing a contingency plan. As you know, I understand the Department of National Defence were here explaining some of their planning, and we are part of this contingency plan. By 2000 we will be ready with our contingency plan.

The Chair: So before we break in December 1999 there'll be an order in council that will allow this if it's needed.

Mr. Michael Binder: I'm sure if it's part of the contingencies required, we will probably have one.

Mr. Jan Skora: This is part of the planning we're going through in preparation for 2000—the preparation of orders in council, if necessary. In a lot of cases, such as the weather warning case, the broadcasters have cooperated freely and willingly, and we expect they would do that in this case as well. However, if that is not the case we clearly have the power to direct the CRTC, who would then ensure the public service announcements were carried.

The Chair: I think Mr. Colville would like to reply to that as well.

Mr. David Colville: It's not specifically on that point, but last year when the ice storm happened and a number of the broadcasters ran into problems themselves in terms of their own transmitters coming down, they came to us asking for quick relief and to be able to use somebody else's tower. We were able to deal with that issue very quickly, respond to their concerns and get them back on.

It doesn't deal directly with your question, but the point I want to make is—

The Chair: No. I'm going to repeat it again, because there seems to be some confusion here. Maybe to refresh your memory you should take a look at the weather situations and the weather problems we've had in southwestern Ontario, particularly a year ago last summer. You were not able to scroll across the screen over a program the way you can in the United States to warn about a tornado or a tornado watch because of the CRTC regulations. This was for a severe weather warning. So over certain programming you didn't have that ability.

When you say they're cooperative, they're cooperative to a point. It's a very large issue in southwestern Ontario and other areas that have had severe weather warnings with regard to tornadoes. That being said, I guess that only works on your television if the power is on. So you're off the hook if the power's not on, but if the power is on and there's another type of situation people should be aware of, I guess I'm looking for some preparation in advance, and there won't be cooperation because there hasn't been in the past.

Mr. David Colville: I'm not aware that our regulations prevent that.

The Chair: According to the discussions I've had with Environment Canada over what happens in southwestern Ontario, it has to do with the regulatory body and the cooperation of the broadcasters, and there hasn't been 100% cooperation to date.

Mr. Michael Binder: I guess, Madam Chair, the reason is that it's never been invoked before. The Broadcasting Act is relatively new; it's from 1989, I believe. I don't think we've ever used this provision to declare a national emergency. It absolutely has to be a national emergency to overrule the prerogative of the broadcaster. We have not used it, but it's not because we have been reluctant. Cabinet has to agree there's a national emergency, and then the execution is quite easy.

• 1715

Our view is that as we progress to develop our contingency plan it will be an element of the planning. If it's deemed that we are into emergency contingency planning, I am sure we will be able to resolve this problem.

The Chair: That's good. I just want to make sure we're aware that problem exists and has happened, and we're all thinking along those lines.

I also want to ensure the local businesses across Canada, the small businesses, will be able to have communications, because so many of them are internationally related. If they can't make phone calls or receive faxes, orders aren't made and things don't take place.

I guess the good news is January 1 is a Saturday, so that means the holiday's on Monday. You have three days to find your alternative supplier, if you have several in one country. I have more than 100 businesses in my riding alone that depend on communications outside North America on a daily basis. So if the economy has a blip, we all know what will happen to our budget predictions and all the other predictions. You may not realize it, but telecommunications isn't only for safety and emergency; it will be a necessity come January 1, 2000 as well, for business purposes and to keep us going.

I don't know if you've rented hotel rooms in downtown areas and banned vacations, like I've heard from some of the other large companies, but we hope we'll all be able to make phone calls, business will continue, and preparation will be 100%.

I want to thank you for being with us today in continuing to help us update the situation.

I remind members there's a vote at 5:30.

The meeting is adjourned.