Year 2000 Systems Conversions

NCUA Letter 98-CU-13, Year 2000 Testing Guidance, outlines the general requirements and procedures for credit union mission-critical systems¹ (hardware and software) conversions² during 1999. The purpose of this letter is to provide a more detailed discussion of those requirements and procedures. NCUA Letter 98-CU-13 states:

If a credit union plans to change or convert a mission-critical system, and that change will cause the credit union to miss one of the dates contained in NCUA Letter to Credit Unions No. 98-CU-4, NCUA’s Year 2000 Contingency Plan, the credit union must submit a letter detailing the credit union’s conversion plans to the NCUA Regional Director, with a copy to the State Supervisor³. In these circumstances, credit unions do not need to test the old system for Year 2000 compliance⁴. To help NCUA analyze the credit union’s due diligence in reviewing the conversion decision, the letter must include the following information:

The time frame for entering into a contract to change or convert to the new system.

• A contracted delivery date for the Year 2000 ready system.
• Information on the new vendor’s experience in converting credit unions from the current system.
• Planned participation in testing with other users, or user groups, to familiarize yourself with the Year 2000 readiness of the new system to ensure a smooth transition to the new system.
• Communication with the vendor of your Year 2000 needs regarding testing and requirements for the new system.
• A test plan for the new system and any interfaces. This should include a review of test data from other users or user groups of the new system.
• The completion dates for renovation, testing, and implementation of the new system.

NCUA recognizes that there are circumstances that may warrant system conversions in 1999. In general, NCUA does not prohibit credit unions from changing systems, adding new features, or installing upgrades⁵ prior to Year 2000. However, there may be extenuating circumstances in a particular credit union which may adversely impact its safety and soundness if the credit union proceeds with a change to one or more of its systems. In such circumstances, NCUA would not approve of those changes and expects its examiners to address those issues on a case-by-case basis.

All critical-system conversions must meet NCUA’s milestone dates and be made in accordance with NCUA Year 2000 guidances (such as testing requirements). If credit union management elects to convert a critical system during 1999 and cannot meet one or more of NCUA’s milestone dates, they must contact their examiner and/or NCUA Regional Office (State Supervisory Authority if a state-chartered credit union) to seek a waiver of administrative action. NCUA will consider approval of the waiver based upon the individual circumstances of the credit union, including (but not limited to), the ability of management to handle the conversion, the credit union’s conversion plans and contingency plans, and the new vendor’s conversion experience in regard to the credit union’s current system.

NCUA expects credit unions to comply with the Examination Parity And Year 2000 Readiness For Financial Institutions Act and notify NCUA⁶ if they plan a system conversion (critical and non-critical). NCUA expects each credit union to develop and test its contingency plans to ensure that the conversion does not negatively affect the ability of the credit union to process its transactions and meet member needs. For conversions initiated after September 30, 1999 (NCUA’s full implementation milestone date), NCUA expects credit unions to run Y2K-ready parallel systems (old and new systems) until they determine and document that their new systems are Y2K ready and provide correct data and information. The Appendix contains a further discussion concerning milestone dates, guidelines, and expectations.

If you have any questions, please contact your examiner, NCUA regional office, or State Supervisory Authority, in the case of state chartered credit unions.