You have implied that higher interest rates were necessary to defend the exchange rate. Has the recent declining trend in the Bank’s external reserves been mostly due to the premature conversion of Maltese lira to euro? With an open capital account and the growing integration of the Maltese financial system with that of the EU it is becoming increasingly difficult to clearly identify the impact of the different factors affecting movements in the external reserves. Some factors, moreover, are interest sensitive, others less so and yet others not at all. 2  BIS Review 59/2007  One major factor belonging to the latter category that has exerted downward pressure on the reserves since the latter part of 2006 has been the improved prospect of euro adoption in 2008. This has induced some firms and individuals who receive foreign income denominated in euro not to convert such income into domestic currency. Others are converting their Maltese lira deposits into euro deposits. In addition, holders of Maltese lira assets, particularly cash, have been buying up euro currency notes. It is significant that since the external reserves started to decrease in November, currency notes in circulation have declined by about Lm35 million, almost entirely in the form of Lm10 and Lm20 notes, the preferred medium for cash hoarding. At the same time, the importation of euro notes, mainly high denomination notes, has increased. Movements in the external reserves are also influenced by the performance of the current account of the balance of payments.

Supervisors need to ensure that cyber security becomes a permanent agenda in the board’s engagements with senior management. There should be on-going dialogue about emerging trends and vulnerabilities, and the measures in place to address them. This would raise awareness of security concerns and ensure that existing cyber security risk management practices are effectively integrated with the firm’s wider business strategy and risk appetite. It is equally important to ensure that the board of directors’ of the financial sector invests adequately in cyber security infrastructure systems and procedures. The amount of funds allocated should commensurate with the nature and scale of an institution’s business activities, and its strategic direction. 65% of respondents in an Ernst and Young survey in 2013 cited an insufficient budget as the primary challenge for information security functions to meet the demands of the business. As supervisors of the financial system, we should require financial institutions to continuously benchmark infrastructure and systems against leading best practices in cyber security. This includes the application of security testing measures to identify key potential vulnerabilities in a financial institution’s information security system. Financial institution ought to take a long term view on this matter. Supervisors can do more to encourage financial institutions to improve the response to evolving threats by ensuring continued access to external and internal expertise necessary to rapidly develop controls and defences that protect critical assets and operations. Today, the lack of skilled resources remains a key barrier to value creation in regard to information security.