MAS has circulated draft prudential guidelines for securitisation to industry participants for comments. The guidelines for banks have been finalised.5 These take into account feedback from the industry and existing securitisation transactions. They set out the capital treatment of securitised assets, as well as disclosure, separation and other requirements for the various roles that banks take on in a securitisation transaction. The guidelines seek to define clearly the roles, responsibilities and risks that banks retain or undertake, when they participate in a securitisation transaction. They also ensure that banks hold appropriate capital against the risks they accept. Thus, a bank that has securitised its assets will be granted capital relief only where the transfer of risks and rewards of the securitised assets has been effective and complete. The internet and its impact on the securities industry The second major issue is the impact of technology and the internet on capital markets. In the securities industry, the internet has caused fundamental change, slicing the value chain more and more finely, and recombining it in novel configurations. Functions previously offered as a package by brokers, such as analysis and advice, recommendation and order routing, are being separated and broken up. New entities, such as aggregators or navigators, have emerged, offering hitherto-unseen types of services. These changes will bring major benefits to the industry and investors. Firstly, the internet has fostered a free flow of investment information. With a surfeit of news, financial institutions are rethinking their business models.

Besides refining the treatment of liability risk, we will also look at capital charges for asset risks. This will help to level the playing field between banks and insurance companies, and minimise opportunities for capital arbitrage. The new capital requirements should also provide an early indicator of financial weaknesses, and thus facilitate progressive intervention by regulators. These risk-based capital requirements will be introduced by end-2003. Raising professional standards in insurance To improve corporate governance and internal governance, it is critical to raise insurance professional standards. All insurance professionals should constantly upgrade both their technical and management skills. In 2000, MAS appointed a private sector committee, the Committee for Efficient Distribution of Life Insurance Products (CEDLI) to recommend minimum standards of transparency, competition and efficiency in the distribution of life insurance products. MAS accepted CEDLI's recommendations to enhance the sales advisory process and professional training. To date, industry practitioners have adopted these minimum standards enthusiastically. Many have gone further, and set their own requirements that exceed the prescribed standards, because they realised that this makes them more competitive in the market. This has improved the level of professionalism among life insurance agents and greatly enhanced the reputation of the industry, which in turn, is helping the industry to attract higher-calibre talent. Training and competency requirements should apply across-the-board to all insurance professionals, and not just to life insurance intermediaries. MAS is currently reviewing the manpower capabilities of the insurance industry and will identify the main competency gaps and areas of weakness.