Going forward to a time when all this global financial crisis is resolved, it may also be appropriate to revisit and rethink the standard financial regulatory framework, particularly in emerging and even in a more developed part of the world. Given the magnitude of market adjustment, volatility and contagion across markets, risk diversification is easier said than done. This is especially true as markets and institutions seem to correlate highly in a crisis situation as risk-aversion intensified. The current financial climate, therefore, highlights the importance of supervisory coordination. This coordination should include both domestic and cross-border dimensions and encompass key regulators and central banks. This is for the benefit of information sharing and elimination of regulatory arbitrage, which has been one of the fundamental causes of this crisis. Given increasing financial integration, and growing complexity of financial instrument, market, counterparty links, and changing demarcation line between different financial institutions and financial players, we have witnessed emergence of the new channels and process of spread of systemic risk, through broader groups of players – banks, investment banks, insurance companies, and non-banks – all of whom are regulated under different framework, or not even regulated. Because of this, there is a pressing need to rethink the regulatory framework in order to be in keeping with this new paradigm. 2  BIS Review 141/2008  Ladies and Gentlemen, It has been said that this crisis will soon lead to major changes in the geopolitical world order.

As a catalyst for such innovations, I am pleased to announce that following a public consultation process, the Bank has today issued details of the Financial Technology Regulatory Sandbox. Effective immediately, financial institutions and fintech companies will now be able to pilot innovations in a controlled, live-test environment with appropriate flexibilities accorded. This will include flexibilities under existing regulatory requirements that apply to outsourcing arrangements and access to customer information, subject to compensating safeguards. The experience from the sandbox will provide input into formulating more proportionate regulations that will spur the orderly growth of new innovations in the financial industry, including insurance. We see significant potential for positive disruptions to transform the business of insurance and takaful in Malaysia – from the way insurance is consumed, to opportunities for addressing leakages to drive insurance costs lower. Indeed, the greatest gains from technological innovations may well be reaped in the more mundane aspects of running a business efficiently. Today, money is still being left on the table from inefficiencies and leakages in the insurance system. From inefficient manual  2  BIS central bankers’ speeches  processes to the slow take-up of electronic payments, there are large gaps in the supply chain that unduly increase the cost of insurance and limit efforts to combat insurance fraud. The insurance industry needs to accelerate its pace in terms of its technological adoption or else events will dictate the shape of the industry’s future.