SARS Outbreak 2003

This Case Study focuses on

• Region: Hong Kong
• Domain: Financial Industry

Event Description

Hong Kong experienced a serious outbreak of SARS in 2003, the first major epidemic to affect the region in recent times. The outbreak originated with the arrival in late February 2003 of a carrier from mainland China and ended officially on 23 June 2003 when the World Health Organisation removed Hong Kong from the list of affected countries. Before the spread of the virus was arrested, the outbreak in Hong Kong would trigger similar outbreaks in Canada, Singapore and Vietnam..

The Hong Kong SARS outbreak was preceded by a similar outbreak in the neighbouring Guangdong Province of China. The local news media in Hong Kong were the first to report on the outbreak and spread of the disease, but little information about SARS was available in the early stages of the outbreak from the Chinese government, local health authorities or other official sources. As a result, rumours were rife in Hong Kong and anxiety was high until the outbreak was brought under control.

Context

At the time of the outbreak, Hong Kong’s securities market encompassed more than 400 securities and 100 futures brokerages as well as hundreds of investment advisers, fund managers and other market participants. Although the global investment banks account for more than half of the turnover in the securities market today as they did then, the majority of brokerages (over 350) are local firms servicing the retail market. In addition to having to be licensed by the SFC, brokerages that trade in the securities, futures or options markets must be trading participants of HKEx, the parent company of the Stock Exchange of Hong Kong and the Hong Kong Futures Exchange.

The Hong Kong Securities and Futures Commission (SFC) is the frontline regulator for market intermediaries and the HKEx. All securities, futures and stock options transactions are electronically cleared and settled through clearing entities that are wholly owned subsidiaries of HKEx.

Impact

• The 2003 SARS outbreak resulted in 1,755 cases and 300 deaths in Hong Kong alone.
• In addition to the tragic loss of life, the epidemic caused widespread fear and anxiety in the local community and had a significant impact on employment levels and the economy overall.
• The Hong Kong securities industry did not experience major disruptions as a direct result of the outbreak.
  • There was no serious spread of infection in the industry
  • The few individuals who were quarantined during the outbreak developed no sign of illness.
  • Some of the measures introduced by the local financial authorities, brokerages and other market participants to slow the spread of the disease and the fear that permeated the local business community did affect the normal efficiency of day-to-day operations.

Response

• All relevant financial authorities and most brokerages and other relevant market participants, including the operators of securities clearing and settlement systems, implemented preventative measures to slow the spread of SARS (Not all at the same stage of the outbreak)
• Because of the shortage of reliable information in the initial stages of the outbreak about SARS and the extent to which it had spread in Hong Kong, it was not before the SFC learned of the preventative measures put in place by firms in the global investment banking community that SFC management created an internal task force on 26 March 2003 to deal with the internal and market impacts of the outbreak.
• HKEx created a similar internal task force and the two met daily to formulate policies and procedures, monitor their implementation, and track cases where market participants and SFC or HKEx staff or their families were affected.

Internal Impact Measures

The measures introduced by the relevant Hong Kong financial authorities to address the internal impacts of the outbreak varied from one organisation to another. They included the following:

• Notices were issued regularly to staff about the organisation’s response to the outbreak and about how staff should proceed if they suspect they have become infected (ie inform management, seek medical attention and refrain from coming to work for the ten-day incubation period and thereafter until it is confirmed that they do not have SARS).
• Staff who became infected would be subject to strict quarantine procedures.
• A variety of approaches were taken to ensure a minimum level of service would be maintained if an organisation’s offices were infected.
• Some organisations implemented a “split team approach” in which two teams were established from a group’s existing complement, each of which was capable of backing the other up. At all times until the outbreak subsided, members of one of the two teams would work from home.
• In other organisations, redundancy was introduced by moving parts of teams to separate office locations for the duration of the outbreak.
• Telephone conference calls were encouraged in place of face-to-face meetings.
• Staff were given the option of cancelling non-essential meetings with external parties and on-site inspections were temporarily suspended.
• A casual dress code was introduced to facilitate the cleaning and disinfecting of clothing, and staff that were pregnant were asked to take early maternity leave.
• Face masks were distributed to all staff. When the local supply ran out, the SFC found alternative sources. Staff were encouraged to wear masks at all times, and those who were required to deal with the public were encouraged to wash their face and hands thoroughly with soap after meeting with external parties.
• Lavatories, elevators and public areas were cleaned hourly throughout the day, and offices were thoroughly cleaned and disinfected nightly.
• Arrangements were made for a team to disinfect and quarantine offices in the event of an outbreak.

Market Impact Measures by Financial Authorities

• Circulars were sent to all market participants asking them to advise the relevant authority should any of their staff become infected and to ensure their business continuity plans were capable of responding to such an occurrence, and identifying business continuity procedures of particular relevance to the outbreak.
• Relevant information from local health authorities was also circulated to all market participants.
• Exchange participants were notified of the steps that would be taken if it became necessary to suspend trading due to a confirmed case of SARS on the exchange trading floor. In particular, the trading floor would be closed 30 minutes after participants were notified of the event and would remain closed for the rest of the trading day for a thorough cleaning. It would only reopen with the approval of the health authorities or after a suitable quarantine period had elapsed.
• A database was set up to monitor the status of reported cases involving brokerages and other market participants.
• A hotline was staffed to answer questions from investors and other market participants about the outbreak and its effect on the local securities industry.

Sector / Community Measures

• The members of Hong Kong’s investment banking community shared information freely in a cooperative effort to minimise the spread of infection. Perhaps as a result, none of the staff at any of the major investment banks contracted SARS during the outbreak. Staff at the smaller retail brokers and other market participants also avoided infection during the outbreak.
• In addition to implementing many of the same measures that financial authorities introduced to address the internal impacts of the outbreak, the following strategies were employed by many of the brokerages and other market participants:
  • Daily business continuity briefing meetings were held to discuss the latest developments.
  • Staff were updated on the status of the outbreak and other relevant information via websites or daily e-mails.
  • Some firms hired medical professionals to be available to staff in their offices during the day.
  • Staff that would normally take public transport to work were reimbursed for taxi fares to minimise their exposure to higher risk areas.
  • Flexible work hours were introduced so that those who did take public transport could commute outside of rush hours.
  • Business travel in Asia was severely curtailed and otherwise restricted to essential trips, and policies were introduced that required senior management signoff for all business travel. In some firms, Hong Kong staff visiting offices in other locations were required to visit a doctor before leaving Hong Kong.

Lessons Learned

Although its impact on the Hong Kong securities industry was relatively minor, the 2003 SARS outbreak had the potential to cause a major operational disruption locally and, because of the significance of the Hong Kong financial market globally, affect the financial system in other jurisdictions.

As the first event of its kind to affect Hong Kong in recent times, the outbreak was a true test of the business continuity management of financial authorities and participants in the securities industry. The following are some of the lessons that can be drawn from the experience:

• At the time of the outbreak, the SFC had a comprehensive market Contingency Plan for addressing disruptions that affect the markets and a Business Continuity plan to address disruptions of its own operations. These plans assumed implicitly that some staff would always be available in firms and at the SFC to maintain operations in the event of a Major Operational Disruption. SARS made it clear that that assumption is not always valid. The suspicion that one member of staff was infected would have been sufficient to cause an entire division to be quarantined and its operations to be shut down for at least ten days. Those plans nonetheless had to be revised during the outbreak to account for such impacts.
• Implementing SARS-tailored contingency procedures was facilitated by established market contingency and business continuity plans. Although they did not explicitly consider scenarios in which no one would be available to continue operating a particular function or an entire business, these plans provided a useful framework for addressing the host of issues that arose from the outbreak. That the SFC and other organisations had a Business Continuity Plan in place and a structure for dealing with disruptions was clearly a factor in their ability to respond as effectively as they did.
• Organisations can learn from the experience of others and adjust their business continuity plans accordingly. With the benefit of Hong Kong’s experience to learn from, the financial authorities in jurisdictions to which the SARS virus spread all triggered their business continuity plans as soon as cases appeared within their borders.
• Responding to a crisis in the absence of timely, complete and reliable information is particularly challenging. It affects management’s ability to determine whether to Trigger a business continuity plan and can contribute more generally to a sense of helplessness and anxiety, which in turn can exacerbate efforts to address the crisis. In such circumstances, effective internal and external communications are critical to ensuring senior management have access to all relevant information for decision-making purposes as soon as it becomes available, and to help staff make more informed decisions in their work and about matters that affect them and their families.
• Communication among financial authorities, market participants and the government proved essential to an organisation’s awareness of the status of the outbreak and their ability to determine the appropriate course of action.
• In the absence of established procedures and communication protocols, it is unlikely that financial authorities in the midst of a domestic operational disruption would be able to divert attention away from responding to the local situation to consider whether financial authorities in other jurisdictions should be contacted, who to contact, or how to reach them. This was the experience of Hong Kong authorities during the 2003 SARS outbreak. Because their time was fully absorbed addressing the local implications of the outbreak, there was no opportunity for Hong Kong authorities to initiate communications with financial authorities in other jurisdictions beyond occasional high-level status reports provided at meetings of various international standard-setting bodies. It was also the case that no foreign financial authorities initiated contact with their counterparts in Hong Kong to assess the potential impact of the Hong Kong outbreak on the financial system in their jurisdictions or learn from the steps taken in Hong Kong in the event the outbreak were to spread.

See Also

• Business Continuity Glossary
• Business Continuity Guidelines