Business Continuity Planning ( Bank of Japan)

1. Ｂ　Ｊ ＢＣＰ Business Continuity Planning(Bank of Japan) November　２００７ Bank Indonesia Seminar TadashiUhira Bankof Japan

2. Objectives of A Central Bank BOJ Law stipulates two basic objectives • “issue banknotes and to carry out currency and monetary control” • “ensure smooth settlement of funds among banks”

3. Role of BOJ in the area of payments and settlement • BOJ-NET Funds Transfer System

4. BOJ-NET JGB Services

5. Various Potential Threats faced by BOJ Natural disasters Military attack, terrorism Infectious diseases BOJ Technical disasters System failure

6. Pacific Plate Earthquakes of over M6 Active disconnection Tokai Earthquake Possible source regions Tonankai Earthquake Nankai Earthquake Big Earthquakes of Last 30 Years and Source Regions for Inter-plate Earthquakes North American Plate Chishima trench Chishima and Japan inter-plate earthquake Japan trench Eurasia Plate Tokyo Inland Earthquake Philippine Sea Plate

7. Earthquakes in Capital Tokyo Active Calm Active Calm Active? 1703 1923 Possible earthquake of over M7 Earthquake in Kanto Plain (over M6, after 1600) Magnitude

8. Possible Damages of Tokyo Inland Earthquake (Part 1) • Assumptions for estimating possible damages • Assuming an imminent earthquake of the size of M7 with 18 types of possible ground motions. • Setting 4 types of occasions (5:00 in winter, 8:00 in autumn, 12:00 in summer, 18:00 in winter). • Assuming two types of wind velocity (3 m/s and 15 m/s). * Distribution of the seismic intensity of an earthquake of M7.3 in the northern part of Tokyo Bay * Metropolitan Tokyo area

9. Possible Damages of Tokyo Inland Earthquake (Part 2) Major damages <the earthquake of M7.3 in the northern part of Tokyo Bay> • # of collapsed or burned down buildings: • Around 850 thousands (Distribution of completely collapsed buildings) Liquefaction Earthquake Landslide Fire • Death toll of 11 thousand Traffic accident (Distribution of burned down buildings) Collapse of block walls etc. Collapse of buildings Fire Landslide • # of injuries: 210 thousand

10. The role of the Bank of Japan under relevant laws ・　“Policy Framework for Tokyo Inland Earthquake” (September 2005) Continuity of “capital city functions” -Essential political & administration functions -Essential economical functions ・　“Armed Attack Situation Response Law(2003)” “Civil Protection Act (2004)” Armed attack situations & large-scale terrorist attacks

11. Ｂ　Ｊ ＢＣＰ The role of the Bank of Japan under relevant laws ■ “Policy Framework for Tokyo Inland Earthquake” (September 2005)1. Requires continuity of “capital functions” to be secured immediately following an earthquake disaster (i.e. during the emergency response phase, or three days following the disaster ). Among various “capital functions,” the Bank is listed as the first “essential economic function.” - Major private-sector financial institutions and payment and settlement systems also planned to be designated as “essential economic function”. 2. Identifies the following objectives for those organizations designated as “essential economic function” : (a) Ensure the availability of staff to continue critical functions; (b) Restore critical financial and settlement functions within the day of disaster, for example, by switching over to backup facilities; and (c) Provide necessary information in order to maintain confidence in Japan’s financial and settlement functions. 3. Describes the following measures for achieving the above objectives : (a) Further enhance backup facilities; (b) Ensure the availability of emergency response staff by, for example, providing earthquake-resistant residences located within walking distance.

12. Ｂ　Ｊ ＢＣＰ The role of the Bank of Japan under relevant laws (cont-d) ■Civil Protection Law (2004) 1. As a Designated Public Corporation, the Bank is required to continue its operations in times of armed attacks or large-scale terrorist attacks within the scope of its role stipulated in Article 1 of the Bank of Japan Law. The Bank formulated and released its “Civil Protection Business Plan” during fiscal 2005 in accordance with the Law. 2. Article 133 of Civil Protection Law clearly describes the Bank’s role as a Designated Public Corporation, requiring that the Bank contribute to the safety and security of Japanese citizens in times of armed attacks or other emergency situations through its operations. 3. “Basic Guidelines for Protection of the People” (2005) requires Designated Public Corporations to make necessary arrangements and develop measures for carrying out their responsibilities. This includes procedures for ensuring the availability of staff in consideration of various cases such as when it is difficult to reach the organization or access has been cut off.

13. International Standards(CPSS related) • Core Principles for Systemically Important Payment Systems (CP-SIPS) • Recommendations for Securities settlement Systems (RSSS) • Recommendation for Central Counterparties (RCCP) • High Level Expectations (SWIFT)

14. Market Infrastructure Market Infrastructure FI FI FI FI FI FI Strengthening the resilience of the Japanese financial system and markets • Lessons from 9.11 • Growing Interdependencies in the financial market • Demand for financial transactions immediately after a disaster event • BOJ’s approach to BCP • Aims to resuming transactions and settlement at the earliest possible stage. This requires effective BCP for the entire financial system, which includes BCP at: individual markets market infrastructures individual financial institutions

15. Strengthening the resilience of the Japanese financial system and markets (cont’d) 1. “Business Continuity Planning at the Bank of Japan” July 2003 (http://www.boj.or.jp/en/about/03/sai0309a.htm) 2. “Business Continuity Planning at Financial Institutions” July 2003 (http://www.boj.or.jp/en/ronbun/03/ron0307b.htm) 3. “Issues to be examined and addressed in market-wide BCP” December 2003 (not published but distributed to relevant parties)

16. Medium-Term Strategic FrameworkBOJ Fiscal 2005-2009 Additional human resources and IT investment will be allocated with emphasis on goals 1,2, and 3 (BCP). • Strategic goals for fiscal 2005-2009 • Strengthening policy planning capabilities • Attaining safer and more efficient payment and settlement systems and market infrastructure • Ensuring business continuity arrangements for emergencies • Enhancing the functioning of the financial system • Enhancing international operations and services in response to globalization • Securing confidence in the currency • Promoting better understanding of the policies and business operations of the Bank and related financial and economic issues • Improving regional services

17. BOJ Action Plans on BCP (Fiscal 2006) • Enhance business continuity arrangements at the Bank’s Head Office 1-1 Improving the Bank’s alternative operational bases - special task force formed in April 2005 and new backup office became operational last year 1-2 Further strengthen the backup capabilities of systems used for BOJ services - enhance switch-over procedures to and from backup BOJ-NET centers - expand the range of systems with backup capabilities

18. BOJ Action Plans on BCP (Fiscal 2006 (cont’d)) 1-3Ensuring the availability of personnel, and reinforcing the necessary infrastructure at the Bank and the measures to be put in place in case of earthquake in the Tokyo area - BOJ provides residences located near the Bank for some of our key staff and require them to stay within a walking distance from the Bank. The number of these staff should be sufficient to run the critical operations of the BOJ.

19. Ｂ　Ｊ ＢＣＰ Staffing arrangement at Tokyo Head Office ■New arrangement introduced in 2006 As soon as staff is available First business day Second business day Disaster occurs or is imminent 30 minutes Group 1 operations Head Office BOJ-owned residences or hotels located within 3 km Group 1 personnel Group 2 operations Critical operations that need to be started at the beginning of the first business day following the disaster and need to be completed on that day Preparations Group 2 personnel BOJ-owned residences or hotels located within 5 km Group 3 operations Operations that need to be started and completed on the first business day following the disaster Preparations BOJ-owned residences located within 10 km Group 3 personnel Other operations Home Other personnel

20. BOJ Action Plans on BCP (Fiscal 2006 (cont’d)) ２.Enhance the business continuity ability of the overall financial market, payment and settlement system, and financial system, in the face of a possible disruptions. ー Taking initiative in cooperative endeavors with relevant entities. ３.Improving exercises in preparation for emergency operations by, for example, conducting joint drills involving financial institutions and government agencies. ー Encouraging financial institutions and other relevant entities to improve business continuity arrangements ー Supporting market participants’ initiative in business continuity arrangements, promoting cooperation between markets and supporting the operation of web sites for BCP

21. Ｂ　Ｊ ＢＣＰ Business continuity exercises（April 2006-March 2007）

22. Ｂ　Ｊ ＢＣＰ Business continuity exercises（ Cont.　）

23. Damage scenarios • Tokyo Head Office remains functional, main computer center unable to operate • Tokyo Head Office damaged, main computer center remains functional • Tokyo Head Office damaged, main computer center unable to operate

24. Possible actions under Scenario 1 • Headquarters: Tokyo Head Office • Data processing: Backup Center • Operations: Tokyo Head Office

25. BOJ‐Net back-up Facilities • Resume operation within 2 hours after the start of the switch-over process • High-capacity proprietary line connecting main and backup sites • All critical equipments (e.g. host computer, communication controllers, database) duplicated at both centers • Switchover test (annual) involving online participants

26. Possible actions under Scenario 2 • Headquarters: Back-up Site (terrorist attack) / Tokyo Head Office (system trouble) • Data processing: Main computer center • Operations: Back-up Site • Pre-determined critical operations • Existing facilities (Back-up center, neighboring branches, etc.) be also utilized

27. Possible actions under Scenario 3 • Headquarters: partly transferred to Osaka • Data processing: Backup Center • Operations: Osaka + no contact between Tokyo and Osaka for 2 days (= Extremely Severe Conditions)

28. Business operations to be continued at Tokyo Head Officeunder Extremely Severe Conditions Objective: Support economic activity in the disaster-stricken Tokyo area • Cash-related services • Credits/debits to accounts and credit extension • Monitoring of payment and settlement systems • Emergency financial measures

29. Business operations to be transferred to Osaka under Extremely Severe Conditions Objective: Ensure stability of payment and settlement system in areas unaffected by the disaster • Operation of the BOJ-NET • Settlement of transactions already entered into BOJ-NET • Credit extension • Communication/coordination with overseas parties

30. Specific arrangements • Disaster Management Team • Centralized responsibility to: • Monitor and assess the disaster situation • Collect and disseminate information • Staffing • Activities assigned for various cases and stages, including: • Non-business hours (at night, holidays) • Government warning of an imminent earthquake

31. Specific arrangements(cont-d) • Communications • Diverse communication methods, including emergency telephone services, wireless devices, satellite phones and BOJ-NET messaging function • Internal/ external contact lists • Alternative Operational Site • Back-up office

32. BCP at Financial Institutions ・“Business Continuity Planning at Financial Institutions” July 2003 (http://www.boj.or.jp/en/ronbun/03/ron0307b.htm) Objective of the paper: • To identify issues that financial institutions should take into account when developing their BCP Describes significance of and possible approaches for: • Identifying potential threats • Identifying major failure scenarios • Identifying critical operations • Setting recovery time objectives • Maintaining multiple communication methods • Testing and reviewing the plan on a regular basis

33. Questionnaire Survey on Business Continuity Management(December 2006) ・ Third survey on BCP (2002,2004,2006) ・ 84 financial institutions ・ To grasp the current situation and use the results to discuss BCP issues with financial institutions. ・ Discuss issues through on-site examinations and off-site monitoring. (On-site Examination Policy)

34. Survey Results on Business Continuity Management(1)

35. Survey Results on Business Continuity Management(2)

36. Market Wide BCP “Issues to be examined and addressed in market-wide BCP” December 2003 (not published but distributed to relevant parties) Objective of the paper: • To put together key issues discussed at cross-market BCP forums and workshops hosted by BOJ Discussions on issues to be considered and possible approaches for: • Exchange of information on individual institution’s BCP • Emergency contact lists • Market-wide exercises • Sharing information in times of disaster • Market practices to be applied in times of disaster Ongoing work by market players: • Discussion of key issues within individual markets (eg money market, FX market)

37. BCP Arrangements in Money Market • BCP arrangements established in Apr. 2006 by Japanese Bankers Association • Dedicated BCP website (Aug. 2006) • Joint exercise (Sep.2006 and 2007) • Market participants (169), payment systems, BOJ, FSA • Confirm information sharing, discussion on altering mkt practice, inform status of BOJ-NET.

38. BCP Arrangements in FX Market • Market-wide BCP arrangements established by Tokyo FX Market Committee (Sep. 2007) • Command Center in emergency. • Information shared among members through dedicated BCP website. • Members: market participants, CLS, TBA, BOJ and Tokyo Financial Exchange • Start with the committee members (around 20) and expansion planned to include other market participants. • Dedicated BCP website • Currently restricted to the committee members, and will be expanded to other market participants from Dec. 2007. • Joint exercise and BCP seminar planned (fiscal 2007)

39. BCP Arrangements in Securities Market • BCP forum established in Apr. 2006 to study market-wide BCP arrangements for different securities markets. • Three study groups focusing on (a) exchange stock trades, (b) OTC bond trades, and (c) off-exchange stock trades respectively established as sub-groups of BCP forum. • Members of the OTC bond trades subgroup: market participants, securities settlement systems, BOJ, securities exchanges, JSDA (as secretariat). • Plans to create BCP manuals and set-up dedicated BCP website.