Basel II, in my view, is fundamentally about better risk management and corporate governance on the part of banks, as well as improved banking supervision and greater transparency. Thereby, it is also about increasing the stability of the global financial system, to the benefit not only of banks, but also consumers and businesses. This is especially critical in markets where banks are the primary source of funding and therefore key drivers of sustainable development. How will Basel II contribute to financial stability? Allow me then to take a few minutes to elaborate on several areas where I believe Basel II will foster financial stability. First, I believe that Basel II is a major step forward in strengthening the incentives for the ongoing improvement of banks’ risk measurement and management systems. The new capital framework is both incentive-based and risk-based. It therefore offers us the opportunity to ensure that supervision and regulation takes a forward-looking view on risk, that it remains up-to-date with sound practices in the industry and that our supervisory framework motivates responsible risk-taking and prudent behaviour in our markets. Improved and more formalised risk management will bring better assessment, better quantification and greater awareness of risks. To the extent that risk assessment and control methods become more formalised and rigorous, this will lessen the likelihood of making bad decisions and will improve riskadjusted pricing policies. It will also contribute to the prompt detection of errors and deviations from targets, allowing banks to implement corrective measures at an early stage.

Accordingly, we have widened the list of the strategic objectives of the National Bank that now explicitly incorporate support of technological progress and financial innovations, as well as financial literacy as important tool for protection of consumers in the fintech environment. Regulators cannot control nor predict what innovation will look like in the future. However, given the benefits it brings, regulators can contribute to the development of a Fintech ecosystem by creating an enabling environment for the entry of new products or  2/4  BIS - Central bankers' speeches  new players into the financial services market. Usually, regulation is seen as a significant challenge for Fintech-led transformation. In this context, together with the Ministry of Finance, we have put a lot of effort to significantly update payment services regulation, which is currently going through a legislative approval process. The new legal framework for payment services embodies objectives that seek to foster innovation while ensuring a level playing field for all players, including newcomers. An important step in the same direction are efforts for digital identity verification of consumers that has a significant potential to drive greater levels of financial inclusion and financial accessibility. Regulators can enable, encourage and support innovations in financial services, by providing regulatory certainty and clarity. Considering this, in the National bank we established the so-called "Innovation Gateway",to serve as a central point of contact and communication channel between innovators in the financial industry, the central bank, and other relevant authorities.