Inevitably, payment networks could become more interconnected and a single and large payment network could emerge. It then becomes essential to be in a position to manage the risks that may emanate from places beyond national boundaries. There has to be then a high level of preparedness against any disruption in the flow of information, funds and securities becomes vital. Ladies and Gentlemen, The policy response How have these developments changed the way Bank Negara Malaysia operates? In Malaysia , efforts are currently being taken on several fronts to meet the challenges arising from these trends. These range from structural enhancements to the macro surveillance systems, to strengthening of the robustness and capacity of financial players, in addition to promoting greater understanding of the intricacies of the interconnectivity, and the nature and speed of contagion risks within the overall system. On the regulatory front, closer regulatory oversight is particularly important in ensuring the strength of the risk management framework of large and complex financial institutions that are active in crossborder transactions. Towards this end, Bank Negara Malaysia is enhancing its prudential framework for the management of operational risks among such financial institutions, with the introduction of  BIS Review 32/2006  1  sound practices. The Bank's prudential framework has also been refined and enhanced to ensure that financial institutions address the risk management implications of new financial products, including credit derivatives, credit default swaps, credit linked notes and collateralised debt obligations.

MAS views seriously the responsibility of banks to safeguard the integrity and security of customer information held by the bank and its service providers. To enhance the protection of critical customer information, outsourcing arrangements involving certain customer information will be subject to a higher standard of care. •  Third, a greater focus on FIs’ outsourcing risk management framework. FIs were previously expected to pre-notify MAS of any material outsourcing arrangements, and MAS would impose prudential requirements on the FI, where necessary. With the growing prevalence and complexity of outsourcing arrangements, such a caseby-case approach has become less tenable. Instead, MAS will continue to assess and monitor the robustness of FIs’ outsourcing risk management frameworks while FIs will continue to be responsible for ensuring the safety of all of their outsourcing  4  BIS central bankers’ speeches  arrangements. The revised Guidelines will no longer require FIs to pre-notify MAS of any outsourcing arrangements. 24. The Guidelines are not intended to be exhaustive. MAS recognises that the diverse range of outsourcing arrangements and rapid pace of progress in digital technology preclude a prescriptive approach to risk management practices for outsourcing or a one-size-fits-all set of rules. MAS will adopt a risk-based approach in implementing the guidelines. Conclusion 25. Let me conclude. 26. A tougher macrcoeconomic environment and growing complexity of operational and technology risks will place greater demand on banks’ risk management and compliance systems.