In addition to the prudential criteria that must be met, the presence of strong and well-managed domestic banking groups that will account for a significant share of resident deposits will remain important for the orderly growth and development of the financial sector and of the Malaysian economy. As our financial sector continues to advance over the next decade, priority will continue to be accorded to ensuring that the regulatory and supervisory regime remains current and continues to foster a sound and stable financial system within a more dynamic landscape. Given the more complex nature of risks stemming from greater convergence in the financial sector, the proposed new financial services legislation will be to promote consistent approaches to regulation and supervision across the financial sector, strengthen the Bank’s capacity to manage risks associated with financial intermediation including financial activities that currently outside the regulated system. A national consumer credit law and improved arrangements for combating financial crime are also included in the recommendations. To ensure that cross-border financial linkages do not propagate risks across borders, the Central bank will intensify its coordination with other regional and international supervisory authorities, focusing in achieving more consistent  BIS central bankers’ speeches  3  regulatory and supervisory standards, timely information exchange and effective supervisory colleges. An important agenda under the Blueprint will be to accelerate the migration from paperbased payments to electronic-payments to generate significant economic efficiencies from more expedient, secure and cost-effective means of moving funds.

An efficient statistical apparatus provides the basis for financial transparency, thus contributing to disseminating best practices in terms of governance. Besides, institutional quality also strongly influences the composition of inflows into emerging economies. This is a key determinant of FDI flows, which tend to increase the benefits of financial integration. The need for sound economic policies and strategies should not either be neglected. In a globalised world where countries compete to attract foreign capital, sound fiscal and monetary policies influence not only the amount but the composition of inflows. Sound domestic policies strengthen the resilience of the economy to external shocks and thus maximise the growth benefits of capital account liberalisation. Recent crises remind us how macroeconomic imbalances may be exacerbated by financial fragilities and trigger capital account problems affecting economic growth. For instance, experience shows that excessive fiscal deficits are more dangerous with open capital markets. Actually, market discipline is not always at play or sufficient if there is excessive appetite for risk and not enough discrimination. Therefore, internal rules as well as Government commitments may be needed as illustrated by the socalled European Stability and Growth Pact. In the same way, structural policies aiming at improving the efficiency of the labour and good markets shall accompany financial liberalisation. They are indeed needed to enhance the capacity of the real economy to attract and allocate capital as well as to reduce vulnerabilities and absorb potential shocks.