Strategies for a euro future

With the imminent adoption of the single European currency, ensuring your systems are euro compliant is a wise investment, says Kiran Sandford. Kiran Sandford is a partner in the IT/telecoms group at Taylor Joynson Garrett.

Although most organisations now have their Year 2000 compliance programmes well under way, many are not yet prepared for the changes they have to make to their computer systems to cope with the introduction of the single European currency, the euro.

Eleven EU countries are joining the European Monetary Union (EMU) on 1 January 1999 and will have a period of three years in which to phase out their national currencies and replace them with the euro.

Even though the UK has no plans to join EMU for the moment, UK companies must be ready to meet the demands of customers and suppliers who switch to using the euro instead of national currencies. Otherwise they face losing business to more euro-friendly competitors. Some multinationals have already indicated that they will favour suppliers dealing in euros.

With less than six months to go before the first European companies move to euro-based trading, UK companies should make sure they have a strategy in place for dealing with those companies. Ensuring that IT systems are EMU compliant should be one of the key elements of that strategy.

Although existing IT systems are capable of coping with different currencies, the regime governing EMU presents new problems which, until recently, IT systems were not set up to cope with.

Most existing computer systems will have to be upgraded, modified or replaced to operate in the euro environment. In particular, they will have to:

handle the euro alongside the national currency of each EMU member country during the initial three-year transition period;

implement the new conversion regime, known as triangulation, which does not allow for direct conversion between national currencies. This means, for example, that to convert sterling into French francs, sterling must first be converted into the euro using the fixed conversion rate and then into francs, again using the fixed rate. Unless all EU countries join EMU, this problem will not go away after the transitional period;

apply strict rules on rounding – parties will no longer be free to agree between themselves how figures in the conversion process are rounded up or down;

cope with the conversion and storing of historic data originally recorded in national currencies; and

ensure that interfaces between, for example, customer and supplier systems that use different currency units remain operative.

The task of modifying IT systems around the world to cope with EMU has been likened to the Year 2000 problem. This is probably true insofar as both problems relate to IT systems and need to be fixed within approximately the same timescale.

But only those systems used to process financial information are affected by the move to the euro, whereas all systems that use dates are affected by the Year 2000 problem. The other major difference is that the Year 2000 problem has arisen because of a technical shortcoming in IT systems which means that many may cease to function at the turn of the century. Systems will continue to work after the euro comes into being, but must be altered to cope with it.

The Year 2000 problem should already have triggered an audit of company systems and possibly the commissioning of new ones, so most businesses will find it makes sense to deal with euro compliance alongside their millennium compliance programme.

Suppliers and users need to review contracts to see whether there is implied or express reference to the supplier taking responsibility for systems being EMU compliant. As the rules governing EMU have only recently become known, it may be difficult to show that the parties intended anything but the most recent software to be EMU compliant.

There are solutions to the EMU problem for existing systems, so suppliers and users should be able to work together to ensure firms are ready to face EMU along with their counterparts in the rest of the EU.

Those acquiring new systems to process financial information should seek EMU-compliance warranties from their suppliers. Many suppliers claim to have already solved the EMU problem and are offering suitable warranties to new users.