Terror attack's effect on City to be tested

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The Independent Online

The Financial Services Authority, the Bank of England and the Treasury will carry out a market-wide exercise on 22 November to test the financial system's resilience to threats such as a terrorist attack.

Aspokesman for the FSA said: "It will be a dress rehearsal, based on the simulation of a market disruption."

The exercise, an annual event, will build on the lessons learned from the test held in June 2003 and will gauge the communications infrastructure and procedures put in place since then.

Some 50 organisations will be involved including key public sector bodies and trade associations. KPMG is helping with the planning and delivery of the exercise, which will be organised from the FSA, though each of the main groups will operate from a separate location.

In a progress report, the Tripartite Committee on Financial Stability, which was set up in April 2002, urged banks and insurance companies to test their own contingency arrangements for dealing with threats ranging from terrorist attacks to more mundane disruptions caused by telephones not working or a local illness.

The FSA spokesman said: "An encouraging amount has been done but there is no room for relaxing or complacency. The good work gets undone if you do not keep testing your systems."

The report said that while some firms have become much better at responding to potential crises and made comprehensive plans, not all have done so.

In the coming year the main priority for authorities will be to make a formal assessment across firms and critical infrastructure of the current level of resilience against a range of scenarios.

A task force chaired by Sir Andrew Large, the deputy governor of the Bank of England who is in charge of financial stability, concluded last December that new statutory powers specific to the financial sector were not required to deal with major operational disruptions but that further non-legislative improvements were necessary.

Following the task force's recommendations, payment and settlement systems have been reviewed and, where necessary, rules and procedures to respond to disruptions have been strengthened. Work is in progress to review the standard market contracts and market coordination arrangements to ensure they would be effective in the event of a crisis.