Second, some life insurers with internal models have been growing in areas where the standard formula over-states the risks: in particular, illiquid assets within Matching Adjustment portfolios. Third, life insurers have been expanding unit-linked business and transferring an increasing proportion of longevity risk on new annuities business through reinsurance, both of which would tend to lead to faster growth in the best estimate of liabilities than capital requirements. In summary, the two benchmarks against which we compare internal model capital might not have been fully reliable measures of changing risks. Our ‘bottom up’ analysis of internal model outputs has also not suggested any generalised dilution of standards. Nonetheless, the significant reduction in internal model capital compared to the standard formula is not a trend we would expect to continue over time. We will be watching it carefully. 2  See Monitoring Model Drift and Standard Formula SCR Reporting for Firms with an Approved Internal Model, Prudential Regulation Authority, Supervisory Statement 15/16. 3 See Solvency II Regulatory Reporting: Internal Model Outputs, Prudential Regulation Authority, Supervisory Statement 25/15. 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  One counter-balance to any selectivity in insurers’ model development is the PRA having its own model change agenda. For example, over the past couple of years, we have asked life insurers to adapt their interest rate modelling to include the possibility of negative rates and we have pushed them to improve their modelling of default and downgrade risks in Matching Adjustment portfolios.

This will also act as a deterrent as it signals the commitment and extent to which the relevant authorities and the industry will go to stamp out crime. Hence, we are looking forward to expand this partnership for different types of crimes. Organisations such as the Compliance Officers Networking Group of Malaysia (CONG) and the industry associations can also play a role in enhancing the professionalism and capacity building of compliance officers in Malaysia. The development of human capital is essential in our efforts to combat financial crime. It is our biggest asset, more than any technology. For Bank Negara Malaysia, we will also play our role by ensuring that the regulatory and supervisory framework will provide the necessary environment to prevent, detect and prosecute financial crimes. For us, fighting financial crime is not just about increasing the compliance cost of banks through greater reporting requirements. Instead, we are committed to ensure that the financial sector is well-equipped to support our law enforcement agencies in order to avert these threats. Since the beginning of this year, we have published Red Flag and Typologies reports on several type of crimes including terrorism and proliferation financing, corruption and fraud. These reports aims to provide insights and create awareness, amongst the reporting institutions, of the trends, methods, and techniques used in these crimes. Enhanced understanding of such risks would assist reporting institutions in identification and early detection in order to assist law enforcement agencies to combat such crimes.